Brendan Keenan: US recovery is on the way as broken banking system fixed
PERHAPS it wasn't so special after all. The recession, I mean. Okay, it is pretty special here. Not everyone can boast an insolvent banking system and a huge construction bubble and burst as well.
They can in the US, if not quite on the same scale. So it is odd that the figures from America suggest that a recovery is well under way and that, on the face of things, it is a pretty typical recovery too. Nothing special.
A recovery may be judged by its timing and strength. US output began to grow again in the second quarter of 2009, marking the start of this recovery. GDP is now 6pc higher than it was back then.
That is a bit sluggish, compared with the last two recessions in 1991 and 2001 (what is it with numerical decades?) but only a bit. At the same stage in those recoveries -- eleven quarters from the turning point -- GDP had grown by 7pc.
According to official data pulled together by 'The New York Times', this recovery was heading along the same path as the earlier ones, but it eased off at the beginning of last year. Was this the eurozone crisis?
Europe blamed
One cannot say for certain, but it would not be surprising, and we know from their comments that the Obama administration thought Europe was to blame.
It is, of course, a matter of vital interest to Mr Obama. It is typically four years before a recovering US economy has recorded what might be regarded as average trend growth of 2.5pc a year. Four years is the presidential term.
Mr Obama became president six months after the economy turned up. But it takes much longer for people to notice and it was always going to be a close run thing as to whether they did sufficiently to secure re-election in November.
Nearly everyone remembers Bill Clinton's famous jibe, "It's the economy, stupid." Not so many remember the context; that his opponent, George Bush Sr, was basking in the glory of the first Iraq war, but the economy was in that 1990 recession. The economy won and President Bush lost.
Mr Obama seems to be doing quite well in the polls at this stage, given the speed and depth of the recession and the huge numbers of jobs lost.
Counting those, along with the people who have given up looking for work, or stayed in education, the labour force has fallen by 2.5 million.
But employment itself is now growing nicely. The January figures showed a gain of 243,000 jobs.
In total, private sector jobs have risen by 3pc since the recovery began, which is on a par with 2001 but a lot better than 1991, when the private sector continued to lose jobs for two years after output began to grow.
Even if you were around, you may not remember much about the 1991 recession. It was overshadowed here by the European currency crisis, although the two things were related. But it was quite nasty, and stalled Ireland's 1987 recovery from the trauma of the early 1980s.
Devaluation of the Irish pound, and the remarkable growth which began in 1993, consigned that recession to the margins of memory.
We should have paid more attention to the downturn of 2001. It stopped the expansion of US investment into Ireland in its tracks. Output and incomes had already reached high EU levels.
There was no sound basis for the dramatic recovery after 2002. Draw a chart of Irish economic output from 2000 and one sees the rapid rise and huge fall of the boom and bust.
But draw a steady line from 2001 and GDP in 2012 is just about the same as it actually is after the crash. If only we had got here that way, instead of the way we did.
What kind of recovery can be expected this time? The US figures are instructive, to put it no higher than that. A second glance confirms the obvious thought that this time is indeed different.
For one thing, previous experience suggests that a crash of this magnitude should be followed by a sharp recovery, but this is not the case.
The US upturn seems fairly typical in timing and size. There has been no rapid return to previous output peaks.
The really striking thing is the difference in the components of recovery.
The 5pc growth in personal spending is much weaker than in the past two episodes and government spending is 3pc down on 2009, whereas it remained fairly steady in 1991-94 and was 6pc higher by 2004.
And then there is housing. Purchases have been stagnant for the past three years, whereas they were up 30pc at the same stage of the earlier recoveries.
A 3pc fall in government employment has offset the good recovery in private sector jobs, although total employment has still done better than 2001. Taking all of that into account, it might seem strange that the growth in GDP compares so well with the other two. The explanation is a much stronger recovery in private investment -- housing apart.
It is 17pc up on 2009, which is about half as much again as at a similar stage of the 1991 recovery. After the 2000 recession, which was led by the bursting of the tech bubble, investment had shown no growth by 2004.
Economic historians have pointed out that recovery from a financial crash, such as this one, has to be led by investment. That seems to be happening, even if the timing is a puzzle.
This investment surge was mentioned by former president Bill Clinton at this month's Irish investment seminar in New York. US firms have lots of cash looking for a home and the Irish government is desperate to get some of it.
Any Irish recovery will also have to be led by investment, and it may have to be foreign investment.
Just as in the US, government and construction will be a drag, and consumers of little help. Unlike the US, domestic private investment shows no sign of recovery.
When Irish firms are ready to invest, they are more likely to want bank finances than use their own money or seek market funding.
A return to normal banking is not yet in sight. Until it is, recovery is unlikely to come into view either.
Originally published in
