How We’re Doing: What’s Blocking the Recovery

Alan Berube, Karen Dynan, and
Karen Dynan
Karen Dynan Professor of the Practice of Economics - Harvard University, Nonresident Senior Fellow - Peterson Institute for International Economics
Ted Gayer
Ted Gayer
Ted Gayer President - Niskanen Center, Former Executive Vice President - The Brookings Institution

November 15, 2009

Index #2:  Last Five Quarters

The economy’s expansion last quarter, for the first time in more than a year, has prompted much speculation that the recession is over. This turning point, however, simply marks an end to the decline in activity. The unemployment rate is at the highest level since the early 1980s, and full employment remains a long way off. Early this year a team of scholars at the Brookings Institution began tracking data to assess where the nation stands regarding the Constitution’s mandates that the government “provide for the common defense, promote the general welfare, and secure the blessings of liberty.” In this second “How We’re Doing” index, we examine the forces that stand in the way of a strong rebound. <not-mobile message=””>Continue reading below chart » </not-mobile>

Related Materials:
» Videos of Karen Dynan and Alan Berube discussing the new index
» Index #1: Presidential first half-years

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“General Welfare”

2008 Q3

2008 Q4

2009 Q1

2009 Q2

2009 Q3

Real GDP growth (annualized) -2.7% -5.4% -6.4% -0.7% 3.5%
National unemployment rate 6.0% 6.9% 8.1% 9.2% 9.6%
Change in payroll employment from one year prior:
Cleveland metro area -1.1% -3.3% -3.8% -5.7% -5.8%
Las Vegas metro area -1.5% -3.9% -5.2% -6.5% -6.2%
New York metro area 0.3% -1.7% -2.5% -2.6% -2.5%
Washington, DC metro area 0.6% -0.5% -0.7% -1.3% -1.2%
Consumer sentiment index 64.8 57.7 58.3 68.2 68.4
Real consumer spending growth (annualized) -3.5% -3.1% 0.6% -0.9% 3.4%
Personal saving rate 2.2% 3.8% 3.7% 4.9% 3.3%
Inflation rate (CPI-U, annualized) 6.2% -8.3% -2.4% 1.3% 3.6%
Interest rate on 30-year fixed mortgage 6.32% 5.86% 5.06% 5.03% 5.16%
Foreclosure start rate—all loans 1.1% 1.1% 1.4% 1.4% N/A
Foreclosure start rate—prime loans 0.6% 0.7% 0.9% 1.0% N/A
Foreclosure start rate—subprime Loans 4.2% 4.0% 4.7% 4.1% N/A
Months’ supply of new single-family homes (ratio of homes for sale to homes sold) 10.7 11.2 11.6 9.4 7.6
Change in home prices from last quarter:
National -3.8% -6.4% -6.8% 1.4% N/A
Cleveland metro area -0.6% -2.6% -6.2% 6.8% 0.0%
Las Vegas metro area -8.8% -9.2% -10.5% -8.8% -2.5%
New York metro area -1.8% -4.2% -4.9% -1.1% 1.2%
Washington, DC metro area -4.1% -6.1% -4.8% 2.2% 2.8%
Federal Reserve balance sheet as a percentage of GDP (total factors supplying reserve funds as of end of quarter divided by annualized, seasonally adjusted GDP) 8.58% 15.98% 14.86% 14.60% 15.26%
Yield on investment-grade corporate bonds (Moody’s yield on seasoned corporate bonds—all industries, BAA) 7.21% 8.84% 8.21% 7.98% 6.66%
Stock market—Dow Jones Industrial Average at end of quarter 10,851 8,776 7,609 8,447 9,712
Global growth rates:
BRICs (Brazil, Russia, India, China) 1.13% 0.64% 0.21% 0.35% N/A
EU-4 0.02% -0.38% -1.46% -1.30% N/A
G-20 1.37% -0.65% -2.67% -2.45% N/A
EU-27 -0.30% -0.48% -1.57% -1.69% N/A
Total number of new trade barrier initiations worldwide (product based) 26 33 33 34 44
Number of new trade barrier initiations by the U.S. (product based) 2 1 1 6 6
U.S. net remittances (US$ billions) -9.4525 -9.4667 -9.4763 -9.4850 N/A

“Common Defense”

2008 Q3

2008 Q4

2009 Q1

2009 Q2

2009 Q3

U.S. troop fatalities (both wars) 130 65 85 102 163
U.S. troops in Iraq (thousands) 148 145 137 130 124
U.S. troops in Afghanistan (thousands) 34 36 41 56 65
Non-U.S. troops in Afghanistan (thousands) 30 31 32 33 36
Fatalities from terrorism, globally 3,792 4,015 3,544 3,914 N/A
Percentage of Americans who believe the war in Afghanistan has been worth fighting 51% 55% 56% 51% 47%

“Blessings of Liberty”

2008 Q3

2008 Q4

2009 Q1

2009 Q2

2009 Q3

Approval rating of the president 31% 28% 63% 62% 52%
Approval rating of Congress 16% 19% 30% 35% 21%
“Satisfied with the way things are” 18% 11% 20% 32% 26%
Approval rating of the president by independent voters 26% 23% 61% 60% 50%
Gap between Republican and Democratic presidential approval ratings 64% 57% 60% 64% 66%

See data sources » 

About 8 million jobs have been lost to this recession — the largest decline in percent terms since the Great Depression. While the pace of job loss has recently moderated, the weak business outlook and still-tight financial conditions point to continued slack in labor demand. A weak labor market augurs weak income growth, which means we are unlikely to see sustained robust gains in consumer spending anytime soon.

Strong growth in consumer spending is possible if households are willing to spend more and save less out of the income they have. But with home prices and stock prices both down about 30 percent from their pre-recession peaks, personal saving has risen as people attempt to rebuild household assets. Greater saving will eventually put households in a more sustainable position, but will also slow the pace of recovery.

Housing prices have turned up in recent months, but it is unlikely that a rebound in home construction will lead the recovery. The inventory of unsold homes has fallen with the collapse in construction, but remains high by historical standards. The millions of homes in the foreclosure process raise the risk that distressed properties will flood the market in coming quarters.

Regional diversity reflects the different forces at play with regard to a broad recovery. While this recession represented a massive blow to the national economy, the Washington area was only mildly hit. Its job losses and unemployment rate are well below national averages, and its gross domestic product has already recovered to pre-recession levels. Home prices fell substantially, but recent increases may signal that a turning point has been reached. Washington has benefited from strong concentrations in industries whose declines were minimal, such as professional services, information, education and government. State capital regions such as Madison, Wis.; Harrisburg, Pa.; and Jackson, Miss. have also performed relatively well, but face a more uncertain outlook than Washington due to potentially deep cuts ahead in state government spending.

By contrast, Cleveland began to suffer well before the national economy. While employment there is down almost 6 percent from a year ago, the metro area has shed nearly 40 percent of its manufacturing jobs since 2000. The mortgage credit boom drove serious foreclosure problems in both the city and its suburbs. Now the region’s economic crisis may be further destabilizing housing prices, which, after showing signs of recovery earlier this year, flatlined in the past quarter. Like other manufacturing-dependent metro areas in Great Lakes states of Ohio, Michigan and Indiana, it is unclear when, if ever, Cleveland may recover fully to its pre-recession state.

Out West, the recession came a bit later to Las Vegas, but its recent job losses have been even more severe than those in Cleveland. That region’s overreliance on home building and rising home prices during the housing bubble ultimately battered its economy amid the subprime lending fallout and ensuing credit crisis. A plunge in consumer spending further damaged the metro area’s tourism and hospitality industries, which are critical to the local economy. While national home prices are showing signs of recovery, home prices in this area continue to fall. Las Vegas and similarly structured housing and economic markets in inland California and throughout Florida will have to rethink their future growth path.

The nation’s largest metro area, around New York, has performed relatively well. Despite Wall Street layoffs, job losses overall have been relatively modest, and home prices have begun to recover from declines early this year. The diversity of that region’s economy, together with the high education levels of its workers, leave New York and similar structured metro areas such as Boston and San Francisco better poised for recovery than those that had relied heavily on housing or manufacturing for growth.

Beyond the economy, the surge of public satisfaction with the president, with Congress and with “the way things are” recorded in the first half of the year has retreated. These indicators remain twice as high as a year ago, at the height of the crisis, but the noticeable decline in the president’s approval among independents, and the growing gap between how Republicans and Democrats view the presidency, are signs to watch.

The conflicts in Iraq and Afghanistan, with climbing fatalities, contribute to national unrest. Though troop levels have begun to decline in Iraq, they have nearly doubled in Afghanistan. As the country looks to the final quarter of the president’s first year in office, Americans seem to be asking not only “how are we doing” but also “where are we going?”

See also:
» GovWatch—tracking the progress and performance of our institutions in economic recovery
» MetroMonitor—a barometer of the health of America’s 100 largest metropolitan economies


U.S. Bureau of Economic Analysis, NIPA.  October, 2009.

U.S. Bureau of Labor Statistics, Current Population Survey Unemployment Data, October 2009.

U.S. Bureau of Labor Statistics, Current Employment Statistics, State and Metro Area Employment.  October 2009.

S&P/Case-Shiller Home Price Indices.  U.S. National Values.  October, 2009.  htttp://

Reuters/University of Michigan.  Archived at Federal Reserve Bank of St. Louis Economic Database (FRED).  October, 2009.

Bureau of Labor Statistics, Consumer Price Index, All Urban Consumers, Seasonally Adjusted. October 2009.

Freddie Mac, Primary Mortgage Market Survey, “Monthly Average Commitment Rate and Points on 30-year Fixed Rate Mortgages since 1971.”  October, 2009.

Mortgage Bankers Association.  Quarter 2, 2009 National Delinquency Survey.  June 30, 2009.

U.S. Census Bureau.  New Residential Sales.  New One Family Houses For Sale  Oct. 2009.

Federal Reserve data comes from  Federal Reserve.  “Factors Affecting Bank Reserves and Condition Statement of F.R. Banks.”  October, 2009.  H.4.1.
GDP comes from U.S. Bureau of Economic Analysis, NIPA Table 1.1.5.  October, 2009.

Yahoo Finance.  DJIA Historical Prices.  October, 2009.

U.S. Federal Reserve. H.15 Selected Interest Rates.  Historical Data.  October, 2009.

Global growth rates: YE 2008 nominal GDP from IMF WEO database; EU-27 data from;quarterly growth rates from Economist Intelligence Unit database.

The CPB Netherlands Bureau for Economic Policy Analysis world-trade database,

Bown, Chad P. (2009) “Global Antidumping Database,” [Version 5.0, July], available at

Remittances: International Financial Statisitcs service of the International Monetary Fund, located at

ABC News and the Washington Post Poll: Afghanistan. October 21, 2009

National Counterterrorism Center, Worldwide Incidents Tracking System

The Gallup Organization. “Presidential Approval Ratings – Barack Obama.” Retrieved 20 October 2009 from The Gallup Poll website. Web site: .

The Gallup Organization. “Congress and the Public.” Retrieved 20 October 2009, from The Gallup Poll. Web site: 

The Gallup Organization. “Satisfaction with the United States.” Retrieved 20 October 2009, from The Gallup Poll. Web site: