Jobless Recovery Part II

Main Story: New Directions

The economic boom in the 1990s was notoriously known as the “jobless recovery.” However, there's plenty of data that shows the 2001 recovery produced even lower rates of job growth. For example, as of 2004, 2.4 million jobs were lost, while 4.7 million were actually needed to keep up with population growth — the first time since 1939 the country went 35 months after a recession without recovering all lost jobs, according to the Economic Policy Institute (EPI). And, the jobs that were created paid less than those that were lost. The result: As the economy enters another recession, it's coming off a particularly weak base of growth. In addition, there's the double whammy effect, in which, thanks to the housing bust, financial institutions as well as consumers are getting severely pinched.

Ultimately, it points to one conclusion: This recession is likely to hit retailers particularly hard. The clincher isn't just that hourly earnings are not keeping up with inflation; the average weekly wage of the American worker has been stagnant, at best, for much of the decade. In 2000, for example, it was $579.22, in 2007, $589.72, according to EPI And it isn't only that consumers can no longer tap their home equity to finance purchases.

The big problem is that, at the same time, the “wealth effect” — a sense of affluence created when homeowners feel the values of their properties are increasing — has disappeared. Now a reverse wealth effect is in place, with consumers cutting spending and trying to increase savings as home prices decline. The bottom line: The primary drivers of consumer spending in recent years are under attack and aren't likely to recover for perhaps several more years.