Recovery Rewards Investors as Jobless Deny Historical Rebound

Bloomberg.com:

The U.S. economy may return to its pre-crisis peak next quarter after a recovery former Federal Reserve official Peter Hooper calls “surprisingly strong, historically weak,” which has seen corporations and the rich prosper while small companies and the unemployed struggle.

The advance has “substantially exceeded expectations but remains well behind the norm,” said Hooper, chief economist for Deutsche Bank Securities in New York. He forecasts the U.S. will grow by 4 percent in the second quarter and 3.7 percent in the third, lifting gross domestic product above the $13.4 trillion peak set in the second period of 2008.

The economy has expanded an average 3.7 percent a quarter since the middle of last year, two-and-a-half times more than the median forecast of 58 economists surveyed in June 2009 by Bloomberg News. That still left first-quarter GDP shy of its previous pinnacle, according to Commerce Department data -- the only time since 1955 the U.S. hasn’t gained back all the ground lost in a recession during the first nine months of a rebound.

The recovery has created what former Fed Chairman Alan Greenspan calls “a bivariate type of economy” in which some have thrived and others have not.

First-quarter earnings for the 460 companies in the Standard & Poor’s 500 Index that reported results through May 14 climbed 55 percent from a year ago, with 353 beating estimates of analysts surveyed by Bloomberg News. The surge in corporate earnings has helped push up the S&P 500 stock index by 68 percent since March 2009, boosting the net worth of Americans who own shares.

Small companies haven’t fared as well. More than half reported falling profits in a survey by the Washington-based National Federation of Independent Business last month.

Cut Payrolls

Unemployment, at 9.9 percent, is near a 27-year high as employers have cut payrolls by eight million since July 2007. The rate is more than twice the 4.7 percent reported by the Labor Department prior to the start of the recession in December 2007.

“It’s not just about Wall Street vs. Main Street,” said Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., the Newport Beach, California-based manager of the world’s largest bond fund. “It’s about large companies versus small companies and wealthy households versus those less well off.”

The uneven recovery may force Fed Chairman Ben S. Bernanke to keep the benchmark federal funds rate on overnight loans among banks near zero until the second quarter of 2011 to help reduce unemployment, said David Hensley, director of global economic coordination for JPMorgan Chase & Co. in New York.

Posted via email from Jim Nichols