Government job loss: The private sector may have shed millions of jobs during the depths of the latest recession, but part of what has added to the persistent gloom of the economic recovery is the slash in government jobs. For instance in July, the private sector added 154,000 jobs but the bump was counteracted by the fact that the economy shed 37,000 public-sector jobs.
Government employment today is about 1.9% lower than it was at the start of the recovery, a fall of 430,000 jobs, according to a recent report by the Economic Policy Institute. By contrast, government employment rose by 1.1% or 232,000 jobs during the same stage of the recovery following the 2000 recession.
The stubborn woes of today's government job market have been largely due to falling tax revenues while spending on unemployment and Medicaid has surged. State and local governments, unable to legally run deficits (unlike the federal government), have been dealing with glaring budget holes by slashing headcount at an unprecedented rate. And that likely will continue – not only at the state and local level, but also the federal level depending how a special congressional committee assigned to reduce America's debt decides to find $1.5 trillion in savings.
Consumer spending: In the years leading up to the latest recession, households clearly overspent. They've since been working to improve their finances but we're still a long way from the point where household debt levels fall where consumers feel comfortable spending more and saving less.
Consumption, which makes up roughly 70% of the U.S. economy, dropped off significantly during the depths of the recession and has continued to be slow through the economic recovery. But as the Federal Reserve Bank of New York recently noted, what has been unusual is the decline in spending on discretionary services like education, entertainment and meals at restaurants.
Spending on such luxuries partly drove the decline of real GDP during the latest recession. It is down nearly 7% -- more than double the percentage decline seen in the early 1980s recession.
Housing: During most economic recoveries, the housing industry typically rebounded in a big way and helped drive overall growth.
Needless to say, this hasn't played out this time. And it become less likely that it will, given expectations that home prices could fall further as an onslaught of foreclosures could eventually seep into the housing market already in excess.
This not only impacts home sales, but it also means consumers will spend less on furniture and appliances and other housing-related goods and services.
Bernanke, acknowledging that economic policies supporting strong economic growth in the long run are beyond powers of the central bank, has urged Washington lawmakers to adopt "good, proactive housing policies" to undo the depressed real estate market.
