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The recession is over so where's the cheering?
04/30/2010 8:40 am EST
That’s when the U.S. Bureau of Economic Analysis announced that U.S. GDP had increased for the third straight quarter. After growing by 2.2% in the third quarter of 2009, and 5.6% in the fourth quarter of 2009, the U.S. economy grew by 3.3% in the first quarter that ended on March 31, 2010.That's almost exactly the 3.3% growth that the consensus view among economists had been calling for.
By the numbers the recession that started in December 2007, the longest economic downturn since the Great Depression, is finally over.
Feel like dancing in the streets? Didn’t think so. For a lot of Americans, no matter what the numbers say, the pain of the recession will go on. The recession is over? So what?
What we’ve got is a clear disconnect between what the economists’ numbers say and most Americans feel in their own lives.
The numbers say that the recession began at the end of 2007. In the fourth quarter of that year U.S. GDP, the measure of all the goods and services produced in the United States, came to $13.391 trillion, according to the Bureau of Economic Analysis. As the recession struck and then deepened the size of the U.S. economy shrank. By the fourth quarter of 2008 U.S. GDP was down 1.86% to 13.142 trillion. That was almost $250 billion in lost economic activity.
The economy got smaller and smaller in the first half of 2009 and finally hit bottom in the second quarter at $12.902 trillion. That’s a drop of 3.7% from the peak in the economy in the fourth quarter of 2007 and it represents $489 billion—almost half a trillion--in lost economic activity.
The recovery, by the numbers anyway, stated in the third quarter as the economy grew by $71 billion. By the fourth quarter GDP was back to where it had been in the fourth quarter of 2008. And with first quarter GDP growth of anything greater than 1.83% the economy would have recovered all the ground that it had lost since the fourth quarter of 2007.
With the report of 3.2% growth in thre quarter, the U.S. economy is back above where it was at the end of 2007.
Why, the Great Recession has been completely erased. Never happened. Business as usual. Back to normal.
Back to normal? Let’s hope not.
The effects of the recession are a long way from over.
When GDP began to rise again in June 2009, the U.S. economy kept losing jobs. Since that “turn” 900,000 workers have lost their jobs. Almost three quarters into the recovery, in March 2010, the official unemployment rate was still 9.7%, even through the economy added 162,000 jobs that month. The unofficial full unemployment rate, the one that includes discouraged workers who have stopped looking for jobs and those who have found part-time work but really want to work fulltime, actually went up in March to 16.9% from 16.8% in February.
And then, there are the long-term unemployed. The number of workers out or work for 27 weeks or longer climbed in March to 6.5 million from 6.1% in February. That means that 44.1% of all the unemployed have been out of work for half a year or more. That’s the highest since the government began keeping records in 1948.
The extraordinarily high percentage of long-term unemployed among the unemployed isn’t a feature just of this recession. The numbers say that long-term unemployment has been rising over the last ten years and that the recession that began in 2007 and has just ended only continues a trend visible in the recession of 2001 as well. One quarter of the long-term unemployed leave the workforce permanently a Congressional Budget Office study found.
Not that even those of us who are employed are exactly rolling in the green stuff now that the recession is over. Personal income rose by just 0.1% in February. Real disposable personal income grew by the same impressive 0.1% in February.
And it’s not like our gains in our personal wealth is making up for that lag in income. Sure, stocks are up 80% off the March 2009 bottom, but investors are still looking at a Dow Jones Industrial Average that was at 10,500 ten years ago and stands just below 11,000 today. That’s a gain of about 4.8% in 10 years.
And besides stock prices aren’t all that important to the average U.S. household. According to the Federal Reserve’s last study of U.S. household wealth (2004-2007), the median net asset value for average U.S. household—those in the 40% to 60% percentiles of the U.S. population by income—is just $88,000 and the house that family owns represents about half of the net wealth in that percentile group. Stocks, whether for the 17.9% of families that own equities directly or the 53% who own them through a retirement plan, just don’t represent a big enough asset to make up for short falls in income.
Especially when the price of that biggest asset, the family home has taken a hit during this recession. In February home prices increased by 0.6% from February 2009, according to the S&P/Case-Shiller 20-city index. That tiny gain was the first year-over-year increase in home prices since December 2006.
If you think about, it’s none too surprising that the end of the recession hasn’t made the economy feel all that great for many in the United States. If you remember way back before this recession, the economy wasn’t all that great either. In fact, the United States, in common with most of the developed world had compiled a long list of chronic economic problems.
Real incomes for most workers weren’t rising. A college education had pretty much become a requirement for any good-paying (and many not-so-good-paying) jobs but the return on that educational investment was falling. Unemployment, always chronically high in inner city neighborhoods and among young black men and women, was rising for all young people. Job creation in the economy had slowed for everyone. And just as painful when a job was created to replace one destroyed or shipped overseas, the new job was often less secure and that paid less.
The Great Recession certainly didn’t make any of these problems go away and its end won’t fix them either.
Especially since most of the fixes that we’ve applied to the economy in our attempt to end the Great Recession have been designed to get us back to a normal economy, as if that was a such a great place to be in the last decade or so.
All of the really hard work to build the solutions to the problems that existed before the Great Recession struck is still waiting to be started.
Like what, you ask?
Like providing access to capital for people who want to start their own businesses. In the last few weeks I’ve had conversations with three different entrepreneurially oriented friends who lamented their inability to find relatively modest amounts of capital to back what to me, and I admit I’m biased, sounded like good ideas. Now I know that banks have pulled back on lending in response to the global financial crisis they created, but it’s never been easy to fund a small business. If we’re going to generate jobs, a big percentage of them are going to have to come from new small businesses.
And speaking of problems in raising capital, we also haven’t begun to address the problems created by the high cost of college and post-college education. Graduating with a BA and $100,000 in debt these days just gets you a entry ticket into an economy where changing jobs frequently is the pattern and where deeply indebted college graduates more and more frequently quickly confront a need for more education and training so that they can keep up with an economy that seems to create jobs only to destroy them a few years later.
And we certainly haven’t come up with anything like a strategy for growing our small companies into globally competitive players along the lines of the mid-size companies that drive the German export economy.
We don’t have a lot of time to come up with fixes. The demographic clock that was ticking before the Great Recession didn’t stop when the economy went into a tailspin. We’ll all be three years older at the end of 2010 than we were when the recession started at the end of 2007. And we don’t have any more of an idea how we’re going to finance the aging of the U.S. population—in a rapidly aging world—than we did three or five or ten years ago.
And we have a whole lot less money—and a whole lot more debt—to invest in fixing our economy than we did before this crisis. The $800 billion for financial bailouts and the $800 billion in stimulus might have been necessary expenditures to keep the crisis from getting worse, but that’s still money that could have been invested in roads or schools or the next generation Internet or whatever. (For more on how the U.S. is falling behind in Internet access and speed—and what stocks to buy if current efforts to catch up with global competitors get off the ground, see my post http://jubakpicks.com/2010/04/29/5-stocks-for-the-nexgt-generation-internet/ .)
So, yes, the Great Recession is over. But the pain lingers and the economy’s very real pre-crisis problems are still waiting for a fix. So you’ll pardon me if I don’t get too excited, okay?
Full disclosure: I don’t own stock in any company mentioned in this post.
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