Bloomberg (08/20/12) Alex Kowalski

Most of the damage inflicted on the U.S. labor market by the recession is reversible, according to research from the Federal Reserve Bank of New York, leaving open the possibility that additional stimulus will be effective in reducing joblessness. Approximately one-third, or 1.5 percentage points, of the jump in unemployment from 5% as the economic slump began to its 10% peak in October 2009 can be traced to a mismatch between the supply of labor and job openings, according to the study, leaving the remainder due mainly to a lack of demand.

“There is still considerable weakness in the labor market,” says Aysegul Sahin, one of the authors and a New York Fed economist. “We see that the weakness in the labor market is not specific to certain groups, such as certain occupations or certain locations. This points to a case where labor market weakness can be attributable to the overall weakness in the economy.” A permanent shift would mean policy makers applying additional stimulus risk spurring inflation by driving unemployment down too far too quickly, while a temporary dislocation would indicate more can be done.

Wall Street Journal (08/21/12) Ben Casselman

Since the recession ended three years ago, the U.S. economy has been more like a merry-go-round, with some movement but never really going anywhere. A month ago, economists were talking seriously about whether the U.S. was headed back into a recession, but now, after a series of encouraging indicators the economy appears to be again moving. However, the larger truth is that the economy has been stuck more or less in neutral since the recession ended.

Dave Altig, an economist and blogger for the Federal Reserve Bank of Atlanta, notes gross domestic product has been growing at a rate of roughly 2% since 2010. Job growth has bounced around a lot month to month, but over time has averaged a relatively consistent 150,000 jobs per month since the start of 2011. Inflation has been a bit more volatile, but remains at or a bit below the Fed’s unofficial 2% target rate.

That kind of sluggish growth is disappointing to anyone expecting the U.S. to return quickly to its prerecession path, as it has after many past recessions. However, it is actually standard for a post-financial-crisis recovery, according to economists Carmen Reinhart and Kenneth Rogoff, who looked at eight centuries of financial crises and found it consistently takes years for economies to get back on their feet. That suggests the U.S. economic merry-go-round still has a few turns left to go.