Nor should the “brown weeds” camp rely too heavily on the payrolls numbers; unemployment is famously a lagging indicator. Nevertheless, it is a bit hard to see where the recovery is coming from. American wages are up just 2.7% a year, and it is a lot harder for workers to borrow money to maintain their spending. The boost from lower gasoline prices (seen in the winter) is disappearing and consumers seem to be saving, not spending, their tax breaks. David Rosenberg of Gluskin Sheff points out that same store sales are down 4.4% year-on-year, a bigger decline than that seen in May. If consumers are not spending, why would business invest? We have seen some kind of a rebound, after inventories were slashed in late 2008, but will it last?
So why might it be “different this time”? The difference lies in the high debt levels being carried by consumers entering into this crisis, the shrinking of the financial sector from its excessive size of two yeara ago. These are burdens that take years to work off. The action taken by governments and central banks may have headed off a Great Depression; they cannot prevent a long period of austerity.