Character of Recovery

8/9/2019 Character of Recovery

1/2

April 19, 2010

Economics Group

John Silvia, Chief [email protected]! 704-374-7034

Azhar Iqbal, [email protected]! 704-383-6805

Industrial ProductionIndex, Cycle Trough = 1

0.98

1.00

1.02

1.04

1.06

1.08

1.10

1.12

1.14

1.16

-12 -9 -6 -3 0 3 6 9 12

0.98

1.00

1.02

1.04

1.06

1.08

1.10

1.12

1.14

1.16

Average of Last 7 Recoveries

Industrial Production

Real Manufacturing and Trade SalesIndex, Cycle Trough = 1

0.98

1.00

1.02

1.04

1.06

1.08

1.10

1.12

1.14

-12 -9 -6 -3 0 3 6 9 12

0.98

1.00

1.02

1.04

1.06

1.08

1.10

1.12

1.14


Real Manufacturing and Trade Sales

Production: In Sync with Prior Recoveries

Industrial production fell sharply in the recession, but if we date the

recovery as starting in June 2009, we can see that the pattern of growth is

slightly stronger than the past seven recoveries (top graph). The

manufacturing sector continues to make progress for both auto and non-

auto components. Over the past three months, there have been double-digit

gains in high-tech and an 8.7 percent gain in manufacturing, ex-high-tech.The March ISM report indicated expansion in orders, production and

employment along with longer delivery times. Therefore, the outlook

remains positive for production. We do not see the case for a double-dip

recession.

Sales: On Track and not Far off the Usual Recovery Pace

Real manufacturing and trade sales have generally followed the typical

recovery path, although the pace of sales growth remains below the

historical trend. Subpar sales are to be expected given the corrections

needed in the American household balance sheet and the limitations on

credit given the new ethic of caution on the part of both borrower and

lender (middle graph). For 2010, our outlook is for real final sales growth of

less than 2 percent, which is down from the 2.5 percent of 2007 with much

of the weakness centered in personal consumption spending.Employment: Economic Outlier, Political Problem, Policy Driver

The outlier in this pretty economic recovery picture is employment (bottom

graph). While recent months have seen a modest rise in jobs, there is

clearly a pattern of below-average job recovery as the economy has

improved. There are obviously two problemssupply and demand.

On the supply side, the United States has had an issue for years of an

oversupply of low- and semi-skilled workers and a shortage of high-tech

scientists and engineers. In an era of the closed U.S. economy of the

1950s1960s, increases in U.S. production were met with increased

demand for workers of all types, and, as such, the excess supply of

low/semi-skilled workers was not as apparent. Meanwhile, the immigration

of health professionals, engineers and scientists continued to make up for a

shortage of domestic professionals.

In the 21st century, we deal with the realities of a global trading/production

model. In this case, increases in U.S. domestic demand are not met by an

equal increase in domestic supply; instead, demand is satisfied by

increased imports. Therefore, domestic job growth lags. Yet, on the supply

side, many workers are unable to respond to changing skills demand as the

development of human capital often takes more time than the market

desires. Therefore, many unemployed are unemployed longer because of a

mismatch of skillsnot just due to weakness in final demand.

Nonfarm EmploymentIndex, Cycle Trough = 1

0.96

0.98

1.00

1.02

1.04

1.06

-12 -9 -6 -3 0 3 6 9 12

0.96

0.98

1.00

1.02

1.04

1.06


Employment

Source: Federal Reserve Board, U.S. Dept. of Commerce, U.S. Dept. of Labor and Wells Fargo Securities, LLC

Character of Recovery II: Differences PersistOur economic recovery remains on a different path than prior recoveries. This frustrates job seekers and

policymakers that wish to replay the past. The globalization and specialization of production marches on.
mailto:[email protected]:[email protected]:[email protected]:[email protected]

8/9/2019 Character of Recovery

2/2

Wells Fargo Securities, LLC Economics Group

Diane Schumaker-Krieg Global Head of Research& Economics

(704) 715-8437(212) 214-5070

[email protected]

John E. Silvia, Ph.D. Chief Economist (704) 374-7034 [email protected]

Mark Vitner Senior Economist (704) 383-5635 [email protected]

Jay Bryson, Ph.D. Global Economist (704) 383-3518 [email protected]

Scott Anderson, Ph.D. Senior Economist (612) 667-9281 [email protected]

Eugenio Aleman, Ph.D. Senior Economist (612) 667-0168 [email protected]

Sam Bullard Economist (704) 383-7372 [email protected]

Anika Khan Economist (704) 715-0575 [email protected]

Azhar Iqbal Econometrician (704) 383-6805 [email protected]

Adam G. York Economist (704) 715-9660 [email protected]

Ed Kashmarek Economist (612) 667-0479 [email protected]

Tim Quinlan Economist (704) 374-4407 [email protected]

Kim Whelan Economic Analyst (704) 715-8457 [email protected]

Yasmine Kamaruddin Economic Analyst (704) 374-2992 [email protected]

Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealerregistered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and theSecurities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and throughsubsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A, Wells Fargo Advisors, LLC,and Wells Fargo Securities International Limited. The information and opinions herein are for general information useonly. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities,LLC assume any liability for any loss that may result from the reliance by any person upon any such information or

opinions. Such information and opinions are subject to change without notice, are for general information only and arenot intended as an offer or solicitation with respect to the purchase or sales of any security or as personalizedinvestment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a

wholly owned subsidiary of Wells Fargo & Company 2010 Wells Fargo Securities, LLC.

SECURITIES: NOT FDIC-INSURED NOT BANK-GUARANTEED MAY LOSE VALUE

Character of Recovery

Documents

Transcript of Character of Recovery