3Qs: A window into the U.S. economy

2011 was a tough year for the U.S. economy, with con­tinued high rates of unem­ploy­ment, surging food and gas prices and con­cern over strug­gling Euro­pean economies in coun­tries such as Greece and Italy. With an eye toward the future, we asked eco­nomics pro­fessor William Dickens to ana­lyze the U.S. eco­nomic out­look in 2012.

What are the biggest obstacles on the road to economic recovery in the U.S.?

There is recovery and then there is real recovery. Economic activity reached its low point in June 2009 and we have been in "recovery" since then. But this recovery hasn't felt much like a recovery because unemployment has remained stubbornly high. Recently unemployment has dropped a bit, and a few hundred thousand jobs have been added, but this hides the fact that job growth has been nowhere near large enough to accommodate our growing population.

In short, we still need to do more to create jobs and put people back to work. Right now the outlook is for more of the same — moderate growth that keeps employment from getting worse — but even if unemployment declines some more, the fraction of the population working doesn't seem likely to recover to its pre-recession levels anytime soon.

What signs have you seen that could indicate improvement in areas such as housing and job growth?

There were positive signs earlier this year when it looked like we might be about to enter another recession. The recovery had enough strength to pull through this period without another decline in economic activity, and job growth has returned to modest levels. The 200,000 jobs created in December was a plus, but to lower unemployment we need to grow faster. There is some evidence that the housing market may have turned a corner, but it is still very badly depressed.

How intertwined is the U.S. economy with that of other nations? What effect will the global landscape have on economic recovery in the U.S. in 2012?

The biggest threat to our still fragile recovery comes from Europe. It seems likely that the EU will experience a recession this year and that may spill over to the United States to some degree if Europeans stop buying from and traveling to this country.

A bigger threat is that Europe faces the possibility of a financial crisis as bad or worse than the one that caused our current predicament. Despite new regulation, we have no idea to what extent our own banking system is at risk should an EU member government default on its debt or a major European bank fail. And should there be another financial crisis, things could get much worse.

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