The International Market: Trade and Its Effects on U.S. Recovery

However, “the flip side of that is that the U.S. has shared in the recovery of the global economy,” Schlossberg said, because of the lift to export growth.

One of the major reasons this recession has not rebounded as quickly as other troubled economic times is because—unlike in the 1980s—credit availability, rather than its cost (i.e., interest rates), has been the problem, leading businesses to liquidate investments, hoard cash and cut back on spending. Banks, on the other hand, are still cautious. Also, when concerns about the debt situations in Greece, Portugal, Spain and other countries hit, the problems spilled indirectly into this country, which created further uncertainty. All of this has had a rippling effect and credit to the trade areas has suffered, he explained.

And unlike some other recoveries, prices will not be going up as quickly. “Inflation won’t be coming back in a big way soon because the global economic environment is so much more competitive,” he said. Labor costs, which on average are two-thirds of the cost of doing business, are where businesses in the U.S. will be focusing, and they face stiff competition from countries where labor costs less. Wage and hiring restraints are limiting income growth, Schlossberg said, one of the main reasons why consumer spending has been unusually subdued.

Still, he said several indicators coming out at the time of the workshop showed that purchasing power overall is picking up speed. Low mortgage rates, although they have not resulted in a rise in home sales, have started to have an effect on refinancing activity, which is increasing household cash flow and spending power. And orders in manufacturing from U.S. plants are feeling the effects of pent up demand—equipment orders for both high- and, to a lesser extent, low-tech machinery have picked up substantially, Schlossberg said. Capacity spending in the U.S. has seen record low levels with this recession, but even though businesses are not yet adding capacity, they are replacing worn-out equipment, a good sign that things are getting better, he said.

FORECAST: Growth rates in typical recoveries are about 4% or more, but Schlossberg predicted a growth rate in the U.S. of about 2.5% for 2010 and about 2.5 to 3% for 2011.