Coming out of the past recession many analysts have become somewhat bold with rebound predictions for 2010, forecasting 4-5 percent GDP growth in the U.S. economy for 2010.
Historically, the year following the end of a recession has marked strong growth. However, this past recession was the worst since the Great Depression and has many underlying issues that “typical” recessions generally do not.
For instance, most recessions are sparked by overproduction as businesses get overzealous about growth prospects, which leads to a glut of inventory. Businesses then slow production and layoff workers in the process as they work inventory levels back to reasonable or even low levels. At that point, those same businesses ramp production back up and take workers on, which cuts unemployment, helping spur growth again.
With that said, the argument for strong growth in 2010 becomes debatable considering the current U.S. consumer is struggling to pay down debt; credit card delinquencies surged in 2009 to more than 6 percent of total cards outstanding, which is already double the rate registered in late 2005.
Not to mention the fact total consumer credit outstanding sits at $2.5 trillion after nearly hitting $2.6 trillion in 2008. This past year marks the first time in 60 years consumer debt levels have shrunk.
So what we have is a U.S. consumer trying to paydown debt, with many struggling to do so, as credit card delinquencies continue to rise. Such an environment does not bode well for a strong rebound in consumer spending.
As for unemployment, getting back the roughly 4 million jobs the economy lost in 2009 is only half the battle. According to U.S. Census Bureau estimates, about 2.5 million new workers on average will enter the workforce every year for the foreseeable future.
Some may argue that many people entering the workforce will be filling job openings created by a retiring baby boomer generation. However, with the current state of the economy many workers are staying on the job longer than planned.
If we factor in new workers with the lost jobs, more than 6 million jobs need to be created in 2010 just to reach 2008 employment levels.
In the past 10 years, the largest number of jobs created annually was 3 million in 1999, only half of what is needed in 2010. It’s a sobering outlook, but unemployment is likely to remain at elevated levels throughout the next year.
So again, with high unemployment and a debt servicing consumer, is 4-5 percent GDP growth reasonable?