By the end of 2009 and going into early 2010, it seemed the economic recession that began three years ago was finally drawing to its conclusion. Government programs and actions by the Fed were taking hold, spending and employment were climbing slowly, and many predicted the economy was on its way up and out of the slump. But the most recent data suggests that hope may have been sparked too early.
A report released by the United States government on Friday estimates that GDP growth increased by 1.6 percent in the second quarter of this year, as opposed to the 2.4 percent previously estimated. Consumer sentiment remains low and continues to fall, and unemployment has stagnated and shows no signs of improving soon.
Ben Bernake, chairman of the Federal Reserve, was under tight scrutiny as he made a speech to economists and bankers from across the globe on Friday. “The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation. We do,” he said, but the question for the Fed is whether the additional measures the Fed may take are worth the cost for their benefit.
A housing crash in 2007, followed by the financial crash of 2008, has been met with decisive action by the government. $1 trillion was spent on tax cuts and other stimulus-motivated spending, and $2 trillion in infusions into the housing and financial industries to aid their recovery. Those actions, combined with the Fed keeping interest rates extremely low, led to a spike in the economy that did not continue as expected.
Some analysts believe this recession is different than other post-war recessions: normally, lower demand eventually builds upon itself to an eventual burst of consumer spending, which helps other industries. But the tremendous loss of real estate value has eroded consumer confidence, so consumer spending never rose enough and is already fading.
The National Bureau of Economic Research officially determines the state of U.S. economic cycles. According to them, the recession never ended.
