Maybe we will get more of a V-shaped recovery after all
There's been a lot of bellyaching about the current economic recovery, with economists predicting high jobless rates and slow growth for years to come. But a paper released by economists at the Federal Reserve Bank of San Francisco on Monday is a little more optimistic: It says that this recovery might be more V-shaped than recent ones have been.
To explain: After World War II, most economic recoveries were rapid, with production ramping up as quickly as it had slowed down. The growth rate of real gross domestic product averaged about 5.5% over the first two years after the low point, producing an economic model that looked like a "V." In recessions between 1988 and 2005, however, growth was slower -- only about 2.9% in the first two years after the low point. It looked more like a "U."
Forecasters, pointing to debt held by U.S. households and lingering effects of the banking crisis, had predicted that this recovery would be U-shaped as well. But in their paper, economists Justin Weidner and John C. Williams say that factors that usually contribute to a V-shaped recovery are more present in this economy than they were in previous ones.
This time around, there are larger gaps in output, more rapid growth of potential output, and real interest rates much lower than the natural interest rate, they said.
These factors "point to a moderate pace for the current recovery, somewhere between the U and V shapes of the past," they wrote.
-- Alana Semuels
Photo: A bit of optimism from San Francisco. Credit: Kangotraveler via Flickr