The U.S. economy began its recovery in mid-2009. Real gross domestic product (GDP) has been on a positive track since then, although the pace has been uneven and slow relative to the previous post-war economic recoveries. From the second half of 2009 and through 2010 real GDP increased at an annualized rate of 2.5%.
The stock market has recovered from its lows, and employment has increased moderately. On the other hand, significant economic weakness remains evident, particularly in the balance sheet of households, the labor market, and the housing sector.
Congress was an active participant in the policy responses to this crisis and has an ongoing interest in macroeconomic conditions. Current macroeconomic concerns include whether the economy is in a sustained recovery, rapidly reducing unemployment, speeding a return to normal output and employment growth, and addressing government’s long-term debt problem.
While business investment spending has been relatively strong during the recovery, consumer spending, typically accounting for two-thirds of final demand has been relatively weak.
Moreover, in 2011-2012, the sharply fading effects of fiscal stimulus and weaker growth in
Europe have likely dampened economic growth. Nonetheless, economic activity in the private economy shows signs of slow but steady improvement. Several areas are prominent:
• Credit conditions have improved, consumers and businesses get loans easier, and constraints on many types of credit supported expenditures have been loosened. The Fed’s January 2013 survey of senior loan officers indicated that, on net, bank lending standards and terms continued to ease during the previous three months in addition to the increase in demand for commercial and industrial loans.
• The stock market has recovered and interest rate spreads on corporate bonds have lessened. The Dow Jones stock index, which had fallen to near 6500 in March 2009, had regained all of its lost capitalization by early 2013. Moreover, spreads on investment-grade corporate bonds, a measure of the lenders’ perception of risk and creditworthiness of borrowers, have dropped from a high of 600 basis points in December 2008 to near 25 basis points in early 2013.
• Manufacturing activity has shown stable improvement during the recovery. Through February 2013, output had increased 2.0% over a year earlier. Capacity utilization has risen from a low of 64% in mid-2009 to 78.3% in February 2013. Noting that a capacity utilization rate of 80%-85% would be typical for a fully recovered economy.
• From mid-2009 through February 2013, there has been an increase in non-farm payroll employment by about 4 million jobs. Monthly growths have been constantly...