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A different sort of recovery

The US economy is growing at over 8% a year. Jobs are returning, industrial production is improving and households are still spending. Everybody expects this business cycle to be like those before and they've lapped up stocks in the US and Europe, in anticipation.

Despite the rising chorus of optimism, I remain convinced that the consensus will be disappointed on growth. That's because most of the excesses of the 1990s' boom were not corrected by the mild recession of 2001.

A recession is supposed to correct imbalances and create conditions for another healthy economic cycle. But the last recession was unlike most others. In 2001, investment collapsed but consumption didn't. On average, a recession results in a two percentage point contraction from entry to trough. In 2001, US real GDP contracted just 0.6 of a point over three quarters. Only the brief recession of 1969-70 was as mild.

This time it is an economic recovery with:

- the highest level of consumer debt;

- the lowest job creation;

- the weakest wage growth;

- US budget and current account deficits that are widening not narrowing;

- low inflation and no corporate pricing power;

- oil prices high and rising, not falling.

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