The jam eventually will dissipate; the problem is, no one knows exactly when.
"For the last six to nine months, the economy's been teetering on the cusp of a recession," said Ken Goldstein, an economist at The Conference Board, a business research organization in New York. "Last November-December, it wouldn't have taken much to blow the economy over the edge. Now, here it is July, and nothing much has changed. We're sort of stuck in a traffic jam and everyone wonders, how long are we going to be here?"
Experts agree the U.S. economy is, in a word, lackluster; that a recession remains in the eye of the beholder; and that a depression isn't in the country's future.
The economy recent came closer to a recession -- defined as two straight quarters of negative growth in Gross Domestic Product. GDP grew at a modest 1.9 percent rate during the last three months of 2007, and just 0.2 percent during the January-March quarter. But it's nowhere near a depression. During the Great Depression of 1929 to 1933, the equivalent of GDP dropped by 30 percent and recovered to 1929 levels only in 1939.
Unemployment today is 5.7 percent, but between 1930 and 1939, the jobless rate averaged 18.2 percent.
Even so, perception is reality when it comes to the economy, experts said.
"Whether it's a recession or not, it's the feeling people have about the economy," said Norman Robertson, economic adviser to the Smithfield Trust Co., Downtown, and former longtime chief economist at the former Mellon Bank Corp.
As the economy continues circling a recession, some longtime Wall Street players say negative markers are getting more media coverage than any positives.
"I've been on Wall Street for 21 years, I went through the crash of 1987 and the recession of the early 1990s, and I've never seen the situation we're experiencing now," said David Bullock, managing director of investment advisory firm Advent Capital Management LLC, in New York. "Ask me to make a choice between a soft economic landing and a depression, and I may be tending toward a depression."
Bullock rattled off a list of negatives holding sway with the economy, including:
• Credit markets have contracted to the point that even companies and individuals with stellar credit records find borrowing tough.
"Banks were making mortgages that they probably shouldn't have made, and people took out mortgages that they shouldn't have taken," said Antony Davies, Duquesne University associate professor of economics.
• A housing market that peaked in late 2006 continues to tumble.
Advent's Bullock believes homeowners for years used appreciation in their homes as collateral for borrowing using home equity loans. "We've been bingeing for years on housing appreciation," Bullock said. "Now, with housing prices falling, there's nowhere to fund consumption."
That consumption was funded by a doubling of home equity loans and lines of credit, to $1.1 trillion, since 2002, Comptroller of the Currency John C. Dugan said in May. But when home prices began falling in 2007, home equity lenders began experiencing losses, he said.
Early this year, some lenders began freezing home equity loan usage. Countrywide Financial, Wells Fargo, J.P. Morgan Chase and Washington Mutual, among the nation's largest lenders, halted home equity loan and lines of credit access, according to the companies.
• $4-a-gallon gasoline and $135-a-barrel crude oil.
"The ripple effects of high crude oil have put a squeeze on manufacturers, who are forced to increase prices to consumers at a time when consumers have less money to spend because of the costs of gasoline and everything made from petroleum," Bullock said.
• The U.S. dollar is worth less on foreign markets and is trading at a historically low rate against other currencies, experts said, as measured by the Dollar Index, a weighted average of six foreign currencies against the dollar, including the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc.
In 1967, the index was 120, and in 1984 it peaked at 152. Until today, the lowest index was 81 in 1992. During the October 1987 stock market "crash," the index stood at 96.4.
Today, the number is 72.
During a "normal" economic slowdown, the Federal Reserve would loosen its grip on the nation's money supply, putting more greenbacks into the economy. That would drive down interest rates and stimulate consumer spending -- which comprises about 70 percent of the economy, experts said.
The Federal Reserve already has done its part to boost the economy, cutting the federal funds rate, the rate banks charge other banks, seven times, and reducing the discount rate, the rate member banks can borrow from the Federal Reserve, nine times, since Aug 17.
The rate cuts for the most part have held the economy in the "muddle" area, while inflation, tame for years, has taken off. Through the first six months of the year, the consumer price index, the most closely followed inflation measure, rose by 5 percent -- the fastest increase in 17 years. In June, consumer prices jumped at the fastest pace in 26 years.
"It's difficult for the Fed to know what to do," Robertson said. "Does it raise interest rates and stem inflation, or does it again lower rates to try to stimulate the economy? I think we may be looking at stagflation." Stagflation is a combination of high inflation and low growth.
"The Fed has few options; it's wrapped up right now trying to save the financial system," Bullock said. He was referring to the recent takeover of IndyMac Bank and legislation adopted by Congress to provide liquidity needed by Freddie Mac and Fannie Mae, the government-sponsored entities that own or guarantee $5.2 trillion of the nation's $12 trillion in mortgages.
"The Fed, in effect, has nationalized the American financial system," said Diana Furchtgott-Roth, a senior fellow at the Hudson Institute in Washington and former Department of Labor chief economist.
With the consumer psyche playing such a major role in the economy's strength, experts said something like a substantial, longer-term drop in gasoline prices could be the stimulus needed to break the recessionary mindset.
"If gasoline dropped, that would break part of the psychology that we talked ourselves into this situation," said Ron Muhlenkamp, founder, president and portfolio manager for investment manager Muhlenkamp & Co. Inc. of Pine.
"I think we'll muddle through the downturn in pretty good shape," Muhlenkamp said.
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