The Speed Limit Recovery

http://www.ft.com/intl/cms/s/0/12b31ef8-80bb-11e0-85a4-00144feabdc0.html#axzz1Mj0Y0quM

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"Human beings, who are almost unique in having the ability to learn from the experience of others, are also remarkable for their apparent disinclination to do so." (Douglas Adams)

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In an FT.com article titled "America: Dallas and Destiny," Robin Harding indicates that one can observe how well an economic recovery is going by looking out the windows of the Dallas Federal Reserve at the "cranes." Her perspective is that crane counting is an economic indicator that works well. So, in 2005-06 you could see 11 of them from the windows of the Dallas Fed. In the recession that followed, they all vanished. The same view today gives us a six crane recovery. The Texas economy is not where it was, but where it is now is better than nothing.

But, there's a contrast here within the U.S. economy that causes some to label its comeback the "speed limit" recovery. First, there is the contrast between Texas and the rest of the U.S. in unemployment, for example: Texas @ 8.1% vs the comparable overall U.S. rate of 8.8%. Some would say the margin is even wider than those numbers. Second, the overall U.S. economy has more problems that pop up as Diane Swonk, a well known economist, outlines below.

To quote Swonk, "The headwinds we are facing - everything from the residual impact of the financial crisis on access to credit to higher prices at the pump - are not enough to derail the recovery, but they do ensure an extended period of sub-par growth."

So, the speed limit recovery has the kind of economic consequences that imply very slow growth at best. Texas is better off because it was less "bad" by any measure before and during the financial crisis. Everybody follows home prices so that's an obvious plus for Texas - it didn't go up that much with the "bubble" so it didn't go down that much with the disaster. From 2000 to 2007, home prices in California rose by 129%, then slide by 25%. And, they have not stopped falling. In Texas, the rise was 44% and since then the "fall" has not been that great - Harding's perspective for this article is that housing here in Dallas is about even or up a little; mine is that the $500,000 and above market is back and moving but below that there is still sluggishness.

The crucial question is how long the speed limit will remain. The main cause for it was the financial crisis but the after effects, as we've said here before, are going to linger. California, Florida, Nevada and Arizona have housing inventory that will linger for years.

Gas at the pump slows down every recovery every time prices get to a pressure point ($3.50/$4.00 per gallon). This round was more based on speculation than any "shortage." And, as opposed to going up this summer, prices at the pump should be going down because the speculators want to take their profits and OPEC continues to insist they they are long on oil.

A rule of thumb for economists is that a sustained $10 rise in the price of a barrel of oil will knock 0.2 percentage points off U.S. growth for each of the next two years. That's reasonable. But, higher oil prices fuel the search for oil, so in Texas there were 329 oil rigs drilling in June of 2009. As of now, the rigs are back up to 816.

So, outside the windows of the Dallas Fed, they've got about half the cranes back that they had before. That's progress. But real progress will be when the unemployment rate for the U.S. overall gets down to 5% with sustainable growth.