MAUI, Hawaii — After three long years, the U.S. gross domestic product has returned to early 2008 levels, but according to Byron Gangnes, University of Hawaii economics department chair, it’s still not where it should be.
Gangnes explained that recessions caused by financial crisis often do take about three years to recover, so the slow going was not unexpected to him. In particular, when a housing bubble bursts, consumers’ feeling of wealth deteriorates and they deleverage all the debts they built up in the good times, restraining consumption. Consumer spending account for two-thirds of the economy, which is why credit unions and others are seeing a dearth of lending, Gangnes told more than 200 attendees of The Paragon Group’s Volunteer Leadership Institute.
Recessions driven by other calamities typically take about a year to recover, Gangnes asserted.
A slow move away from the bubble sector has also taken place, restricting vast improvement in unemployment numbers and causing federal budget adjustments that have also affected the economy. Though there has been a slight improvement in unemployment rates, he added that about one-third of those unemployed have been out of work 27 months or longer, leading to deteriorating skills, and those in their 50s may stop looking at all. These people are also more likely to seek out disability benefits, adding a strain on the government.
Gangnes quipped, “No president has been re-elected with unemployment that high, but the Republicans are trying to make sure that happens.”
Unfortunately, housing is often what pulls the economy up but since 2009 we’ve experienced “the lowest level of housing starts in recorded history,” which began in 1968, Gangnes said. However, homebuilders are becoming more optimistic which is a positive sign.
The figures are not all gloom and doom. After some moderate growth, a plateau occurred in the first and second quarters of 2011.The third quarter showed a solid increase in GDP and another is expected in the fourth quarter when those numbers come out, Gangnes said. Also, consumer confidence has gone up. Still, 2012 being an election year could put a kink in the recovery. “Election season is going to make things even worse because you’re going to have a lot of talk about how bad the economy is,” Gangnes predicted.