U.S. Economic Recovery Sees No Finish Line (ContributorNetwork)

COMMENTARY | The U.S. Labor Department's November jobs report is the latest in a string of conflicting economic data in the past year. While the unemployment rate dropped from 9 percent to 8.6 percent, only 120,000 nonfarm jobs were created compared to the 150,000 to 200,000 needed to support population growth. This comes on the heels of the latest S&P/Case-Shiller Home Price Indices, which showed home prices continuing to decline despite mortgage rates at near historical lows.

In many ways, the conflicting state of the U.S. economy could be attributed to the Federal Reserve's activist monetary policy. The structure of the free-market economy assumes the government does not actively intervene in the market. The Federal Reserve, with its quantitative easing program and zero-interest policy, may have fundamentally deformed the structure of the free market. This could help to explain why the U.S. economy has yet to fully recover, three years after the 2008 financial crisis.

The changed structure may have also been the reason why economists, who are trained in free-market thinking, have had such a hard time in the last couple of years forecasting the U.S. economy. The so-called leading economic indicators are definitely not as reliable as they were in the past.

To be fair, we would have had to endure a much more painful recession if not for timely interventions by the Federal Reserve and the U.S. Treasury. Without bailouts and super low interest rates, many long-standing American companies would have become relics of the past. Also, unemployment could have rivaled that of the Great Depression.

Yet, it is conceivable that the cost of a milder recession is a substantially longer recovery. The Federal Reserve recently revised significantly downward its growth and employment forecast for the next two years. The unemployment rate is now expected to be at least 7.8 percent through 2013. Additionally, there is a distinct possibility of another round of quantitative easing.

All of these factors indicate the U.S. economic recovery will continue to move at a snail's pace, in the same style of Japan's lost decade.

Source: http://us.rd.yahoo.com/dailynews/rss/personalfinance/*http%3A//news.yahoo.com/s/ac/20111205/pl_ac/10606485_us_economic_recovery_sees_no_finish_line

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