Last year about this time there was all sorts of talk about green shoots and economic recovery. We were vocal in cautioning that the shoots were ephemeral and would evaporate with the end of incentive programs and census hiring. We were right, as job growth turned negative in the 2010’s second quarter.
Now, there is renewed enthusiasm about economic recovery, partially fueled by last month’s jobs data and the over 3 percent 2010 Q4 GDP annual growth rate. We believe that this years enthusiasm is on far firmer ground that last year’s. Our economy is much stronger than it was a year ago.
Still, our economy is not as strong as we’d like. Job growth is soft for a recovery, and unemployment remains very high. Businesses and consumers are still over-leveraged. Our financial system is not fully recovered. Residential and commercial real estate markets continue to be weak, with high foreclosures, high delinquencies, slow sales, soft prices, low lease rates, and high vacancies.
An economy as weak as ours will not cope well with any new shocks, and potential shocks are popping up everywhere. The potential for a rapid oil price increase is just the most obvious. Sovereign debt challenges in Europe, Japan, several U.S. states, and even at the Federal level also present obvious risks.
While we still believe that an agonizingly slow recovery is the most likely outcome, the possibility of another downturn is distressingly likely.