The Recession Is Over? Yeah, Right
04/30/2010 9:18 am EST
The numbers indicate that the longest downturn since the Depression has finally ended. But the numbers haven't erased a lot of the nation's economic pain.
The data will say the recession ended March 31.
On Friday morning (April 30), the US Bureau of Economic Analysis will announce that US gross domestic product has increased for a third straight quarter. After growing 2.2% in the third quarter of 2009 and 5.6% in the fourth quarter, economists expect the numbers to show that the US economy grew 3.3% in the first quarter of 2010.
Three consecutive quarters of growth. By the numbers, the recession that started in December 2007, the United States' longest economic downturn since the Great Depression, will finally be 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 what most Americans feel in their own lives.
The numbers say the recession began in the last part of 2007. In the fourth quarter of that year, US gross domestic product, 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 US economy shrank. By the fourth quarter of 2008, US 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, started in the third quarter, when 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 will have recovered all the ground it had lost since the fourth quarter of 2007.
Why, that means the Great Recession has been completely erased. Never happened. Business as usual. Back to normal.
Back to normal? Let's hope not.
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The Not-So-Great Recovery
The effects of the recession are a long way from over.
When GDP began to rise again in June 2009, the US economy kept losing jobs. Since then, 900,000 workers have lost their jobs. Almost three quarters into the recovery, in March, the official unemployment rate was still 9.7%, even though the economy had 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 full time, 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 of work for 27 weeks or longer climbed in March to 6.5 million from 6.1 million 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 percentage since the government began keeping records in 1948.
The extraordinarily high percentage of long-term unemployed isn't just a feature of this recession. The numbers say long-term unemployment has been rising over the past ten years and that the recent recession only continues a trend visible in the recession of 2001 as well. One quarter of the long-term unemployed leave the work force 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 just 0.1% in February. Real disposable personal income grew by the same 0.1% in February.
And it's not like our gains in our personal wealth are 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 a decade ago and stands around 11,000 today. That's a gain of about 5% in ten years.
And stock prices aren't all that important to the average US household. According to the Federal Reserve's last study of US household wealth (2004-2007), the median net asset value for the average US household—those in the 40th to 60th percentiles of the US population by income—is just $88,000. That average family's house represents about half of its net wealth. Stocks, whether for the 17.9% of families that own equities directly or the 53% that own them through retirement plans, just don't represent a big enough asset to make up for shortfalls 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 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 US, like 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 paid less.
Waiting for answers
The Great Recession certainly didn't make any of these problems go away, and its end won't fix them.
Especially because 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 past 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?
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Like providing access to capital for people who want to start their own businesses. In the past few weeks, I've had conversations with three 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 bachelor's degree and $100,000 in debt these days just gets you an entry ticket into an economy where changing jobs frequently is the pattern and where deeply indebted college graduates 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 midsize 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 US 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 stimuli 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 a look at how the US 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 this post on my Web site.)
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, OK?
Jim Jubak has been writing "Jubak's Journal" and tracking the performance of his market-beating Jubak's Picks portfolio since 1997 on MSN Money. He is the author of a new book, The Jubak Picks, and he writes the Jubak Picks blog. He is also the senior markets editor at MoneyShow.com.