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Recovery ratio

Rochester Business Journal
September 7, 2012

It's in the air again: talk of a double-dip recession. Federal Reserve chairman Ben Bernanke raised the anxiety level in July with his warning about the looming "fiscal cliff," but many were voicing concerns about the weak recovery even before that.
After a steady decline since June 2011, the nation's unemployment rate has hovered above 8 percent for several months. The Commerce Department last week revised upward its figure for real gross domestic product in the second quarter, but at 1.7 percent it still was lower than the first quarter's very modest 2 percent growth.
A year ago, worries about a double dip also abounded. The jobless rate was above 9 percent nationwide, and surveys showed declining business confidence.
Most economists pointed out, however, that recovering from the biggest downturn since the Great Depression would be a lengthy process. Growth might be slow, but another recession was unlikely.
They were right. The U.S. economy, which began to grow again in mid-2009, has continued on that path.
It is important to recall what made the 2007-09 recession so severe: the subprime mortgage crisis, which punctured a massive housing bubble. So one key way to measure progress is to track housing-related data.
Take U.S. household debt, which is chiefly mortgage debt; indeed, it accounts for nearly three-quarters.
As noted here last year, household debt as a percentage of gross domestic product peaked in 2007 at more than 102 percent, and it remained over 90 percent in August 2011. During the last major recession, in the early 1980s, the debt-to-GDP ratio was half that.
Today, with increased GDP and steady household deleveraging, the debt-to-GDP ratio has fallen below 75 percent. It's still high by historical standards, but that's a marked improvement from a year ago.
To be sure, the housing bust continues to weigh heavily on the economy. The latest Zillow Negative Equity Report showed 30.9 percent of U.S. homeowners with an underwater mortgage (but happily, the rate here is 13.2 percent, second best among the nation's 50 largest metro areas).

Yet the signs of improvement in the housing sector are clear. For that reason, it seems unlikely we're headed for another economic slump-unless political forces trigger it.

9/7/12 (c) 2012 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email

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