MarksJarvis: Economy waits for booster shot

5 years after collapse of Lehman Brothers, Americans continue to 'hunker down'

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Five years after the economy suffered a massive heart attack as Lehman Brothers collapsed, the patient has finished rehab and is walking, but is still a long way from running.

The stock market has recovered and been reaching new highs, large U.S. companies are enjoying record profits and there are few mass layoffs. But there is still a reliance on gigantic doses of meds from the Federal Reserve. And far too many Americans continue to struggle to make ends meet as they worry about their future.

About 36 percent of Americans still think the nation is in a recession, according a survey done by Absolute Strategy Research. Only 16 percent say the economy is growing, though official data show the country has been recovering for four years.

"I was shocked at the downbeat attitude," said Absolute Strategy Research founder David Bowers, who is based in London. He said he has always counted on Americans to lead global growth with a spirit of risk-taking. Yet his research showed Americans "hunkering down," as they remain insecure about their jobs and still feel the sting of losses from the recession. Though the housing market has been recovering, about one-fourth of homeowners said their homes are still worth less than they paid for them.

The situation is vastly different than what analysts were predicting when the economy started to emerge from its near-death experience. Then, many observers expected a sharp recovery because the downturn had been so extreme.

But the analysts were wrong. The unemployment rate remains at a recessionary level of 7.3 percent and would be significantly higher if many people hadn't stopped looking for work. The percentage of people participating in the workforce is near historic lows.

The scope of the struggle is clear, said Moody's analytics economist John Lonski. In the past year unemployment has fallen from over 8 percent to the recent 7.3 percent. Typically, a decline that steep would mean a gain of 4 percent in consumer spending. Instead, consumption is up a lackluster 2 percent. While some analysts have pointed to an annual rate of 16 million car sales as a sign of a strengthening economy, Lonski notes that in August 2005, auto sales were posting a 17.4 million annual rate.

With Americans still recovering from losses and operating in "defensive mode," Bowers said, growth will be held down throughout the world. Consumers are the key to 70 percent of the American economy, and Americans are major consumers of products throughout the world.

In a survey by the Aite Group on behalf of Chase, researchers found many Americans feeling worse off now than when the recovery began in 2010. Among those who classified their financial health as excellent or decent then, 25 percent said it had deteriorated. Job losses were key, as those employed full time dropped from 47 percent in 2010 to just 39 percent today. About 41 percent of those who had their financial condition decline had college or graduate degrees.

Of course, some Americans have recovered well from the losses of the financial crisis. Hedge funds and individuals with cash to invest have been able to snap up foreclosed homes at dirt-cheap prices, while young first-time homebuyers — who usually propel the housing market — have struggled to get solid jobs. Goldman Sachs has estimated that more than half of home purchases this year and last were all cash, as individuals have had trouble getting mortgages.

People who have dared to invest in stocks have profited nicely too. Those who bought a Standard & Poor's 500 index fund after the stock market plunged about 57 percent have gained about 140 percent. Even people who bought nothing new but simply stayed put through the worst times came out OK.

A person who had invested $10,000 in the Standard & Poor's 500 index just before the market started sliding in the fall of 2007 ended up with about $13,300 at the end of last month if they avoided running away in fear at the worst point in 2009, according to Morningstar.

Yet, many people have been spooked by losses. In the Chase survey, 38 percent said they have been reluctant to save more money because they are afraid of losing money on investments.

That attitude will continue to be a drag on the nation's ability to grow, said Bowers.

Meanwhile, researchers William Emmons and Bryan Noeth of the St. Louis Federal Reserve have found that the average level of household wealth remains "significantly below its highest point" reached in early 2007. Despite gains in employment, home values and the stock market since net worth plunged 26 percent during the financial crisis and recession, households have only recovered about 63 percent of what they lost in inflation-adjusted wealth.

In other words, people aren't simply imagining that they are worse off now than before the downturn.

The average household's net worth has recovered about $95,335, according to the researchers. But for them to get back to even with the wealth they had in their homes, investments and other assets before the crisis, they would need to gain another $56,476 on average.

gmarksjarvis@tribune.com

Twitter @gailmarksjarvis

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