Is This A Recession?
In 1975, economic statistician Julius Shiskin defined a recession as two consecutive quarters of negative GDP. We've got that. Other economists require a 1.5% rise in unemployment within 12 months. Got that too.
The National Bureau of Economic Research, which dates recessions in the United States, defines a recession as a significant decline in economic activity, spread across the country, normally visible in decreased GDP, decreased personal income, rising unemployment, and falling industrial production. Yeah, got that too.
Indeed, NBER has declared this a recession, one of only 24 experienced by the United States since 1797.
How Bad Is This Recession?
Is this a regular old recession or is something more going on? In fact, this recession is rather historic. Consider the following:
• GNP: Real gross national product fell 5.6% in the first quarter. Combined with the last quarter, this equals the steepest six-month decline in a half-century.
• The deficit hit 83% of GDP, the highest level since 1942.
• Unemployment rose to 9.5% in June, the highest level since 1983. More than 14.7 million Americans are unemployed.
• The under-employment rate (which includes part-timers who want full-time work and those who have given up looking for work) rose to 16.5%, the worst levels since the government began keeping this statistic.
• Teenage unemployment (of those who want to work) hit 24%.
• The average workweek fell to 33 hours per week, the lowest level since the government began keeping this statistic in 1964.
• The dollar has lost 30% of its value against the Euro, and is near a five month low against the Yen.
• Car sales are down between 30% and 40% year on year, their 24th straight month of declines, to the worst level since 1982, when 70 million fewer Americans lived in the US.
• More than 52 banks have failed this year, the highest number since 1992 -- the “S&L crisis.” Over 300 banks remain on the FDIC’s problem list, with more being added daily.
• On average, 350 commercial enterprises file bankruptcy daily, a 240% increase of 2006, when the bankruptcy law was changed to its current configuration.
• The S&P has lost 33% of its value since September 2008. The DOW has lost all gains made in the past 12 years.
Does Obama Understand This?
The administration claims the situation is getting better. Obama claims that we should ignore unemployment because “unemployment tends to recover more slowly than other measures of economic activity.” But the other numbers aren't getting better either.
Indeed, the administration points to May numbers which show that the pace at which the economy is worsening is slowing (in other words, it's getting worse, but not as quickly).
But Stuart Hoffman, chief economist at PNC Financial Services, disputes that. He says, “The numbers are indicative of a continued, very severe recession. There’s nothing in here to show that the economy and the market are pulling out of the grip of recession.”
So What Kind Of Recession Is This?
How does this recession compare to regular recessions? For one thing, this is now the longest recession since the 1930s.
Economist Heidi Shierholz, of the Economic Policy Institute in Washington, said in a research note that “this is the only recession since the Great Depression to wipe out all jobs growth from the previous business cycle.” In other words, every job created since the last recession has been wiped out. She calls this fact:
“a devastating benchmark for the workers of this country and a testament to both the enormity of the current crisis and to the extreme weakness of jobs growth from 2000 to 2007.”This fits with the stock market having lost 12 years worth of gains.
But this also is not yet the bottom. The figures above don’t account for GM and Chrysler laying off more than 30,000 employees later this year, shutting plants all over the country, and closing an additional 2580 dealerships by the end of 2010. Nor do they account for the collateral effects that will blast through the economy as these people lose their jobs. There is speculation that unemployment in Michigan could exceed 20%.California is broke. Six other states have budget gaps in excess of $5 billion dollars each.
And none of these figures account for the worsening commercial real estate market, the concern that banks will continue to fail each week for another two years, and the fact that many of the jobs recently created were only temporary summer jobs, which will expire in September.
Moreover, Goldman Sachs estimates that Obama will continue to run deficits of $940 billion for each of the next ten years.
And Thus . . .
So how does we describe the current economy? It is not yet a depression, according to the experts, because that requires three or more years of recession. But we can hardly call the present situation just a recession, as it so easily eclipses prior recessions.
Thus, we give unto you. . . rather, that is, President Obama gives unto you . . .
The Great Recession
22 comments:
Andrew: So you're saying things don't look too good right now?
Not at all Lawhawk, Obama will save us. :-(
Actually, yes, things are historically bad right now and his plans are only making it worse. His spending is crushing the dollar, crowding out private credit, doing nothing to stimulate the economy, and making it impossible for rational policy to ease the current problem.
He's made a bad situation worse.
Andrew: That means it's time for another stimulus, right? Another part of his brilliant plan to make useful money useless, and useless money disappear. It's a typical liberal plan. Throwing money at the problem didn't work, so the answer is to throw some more money at it.
Lawhawk, What's interesting about that, is that they admit that the first stimulus wasn't so well targeted and is taking too long to get the money out.
BUT, rather than retargeting the stimulus and hurrying up the spending, they now want a second stimulus. How does that make sense?
This is the scariest time economically in my adult life, although the 1970's with double digit inflation was no walk in the park. I sometimes consider Obama and his advisors are willing to wipe out the country just so it will be a "level playing field."
If you guys have not yet "The Forgotten Man" by Anity Shlaes, it is a fascinating look at the Great Depression. It is a miserable day in East Tennessee.
I agree with you Andrew we’ve got some real trouble just on the near horizon. At the first of the year 2010 a large number of ARM’s are going to readjust throwing a tremendous number of homes into foreclosure and hasten bank failures. You also touched on commercial real estate, their sustainable unoccupantcy rate is 8%, -- I’ve heard this number is approaching 18% unoccupied, this is unsustainable, and will go off like a bomb in our financial markets if it’s not turned around. You couple defaults of private and commercial real estate with accelerated bank defaults at the first of the year, and we may have a perfect financial storm. You can then change the recession to a depression?
Jed, In many ways, you're right. The numbers are historically bad. But what's worse, is that team Obama seems oblivious to the fact that his plans will only make things worse.
What's even more interesting though, is that, even if I supported his rheotric, I don't see how his plans will actually do what he claims they will do. Nor do I see how they will help his constituents.
In fact, most of what he is proposing will only help Big Business (and only certain industries). But then. . . maybe, that's his real constituency?
Me thinks the left is going to be furious when they figure this out.
Stan, I'm pretty sure that this will eventually be re-described as a depression. . . many years after Obama is gone.
I have heard that banks are still holding up to $2 trillion in bad commercial loans, and you're right about the ARMS. That's going to be ugly.
Holy Smokes:
But its not the kind of recession where ketchup is a vegetable (at least not as reported by Rachael Maddow.)
CrisD, she's still hung up on that? That was what? 1981-1982? That's a long time to hold a grudge against a vegetable.
But the bigger point is obviously that the MSM doesn't want to talk about the current state of the economy. Could you imagine this information going barely mentioned if McCain had won?
Excellent article. Remember when journalists used to use number and statistics like you just did? Oh..those were the days.
I agree with you as well. Not only are things bad, they’re terrible. A lot of people keep drawing economics comparisons to Pre Nazi/Nazi Germany or Great Depression USA, but I think we are in a completely different and worse position (especially given the leanings of our current administration).
From what I have gathered we are operating exactly like Poincare France. I won't pretend that I can explain it better than a Noble Prize winner--but if you care to read a quick history of this period--Golden Fetters by Eichengreen gives a nice history. Still, I can assure you that it doesn’t well and we are going to experience hyperinflation and …well, we get attacked.
Tennessee Jed: I read that last summer. As a student of economic history, it’s great to see revisionist history finally getting some mainstream attraction and reaction. I think what makes her point most poignant is that it was written way before this disaster we now know as the Obama administration. And yes, it's a miserable day in the ATL too.
link to Golden Fetters:
http://books.google.com/books?id=Qk1flhynCD8C&lpg=PA173&ots=ONYY14ji-M&dq=gold%20standard%20france%20poincare&pg=PA173
Freedom21, I remember when the media used to do their job. Those were the days. . . when you could pick up a newspaper or magazine and not only learn something, but trust what they told you. Sadly, those days are gone.
Are we in a period as bad as the Great Depression? No, not yet. But I am concerned that what Obama is trying could get us there. They are about to introduce tax hikes for fake environmental reasons and to provide fake healthcare to no one in particular. Their spending will either bring on hyperinflation or dollar devaluation, which will hurt 90% of the economy to help 10%.
And with a consumer who accounts for 80% of the economy, also being laden with debts and upside down in their investments and homes, the potential for real economic disaster is there.
I guess we'll have to wait and see where this heads. I hope for the best, but I fear that Team Obama is blind to what is building.
Thanks for the link, I'll check it out.
Andrew, I have a memory like...an Elephant!!!
I remember being pounced on for my side of the aisle serving ketchup to the kiddies in their school lunches--. Now, its in a commercial for the ketchup (we grow our own tomatoes--or however the ad goes...)
Yes, this recession is not getting quite the coverage as under a GOP pres.
Great stats. Tx.
Loved all the stats.
Thanks CrisD, I remember all the grief our side got for that as well.
Elephants never forget, unlike jackasses, who never remember.
I'm sure everything will look swimmingly the closer we get to the 2010 elections. Have no fear.
Writer X, I'm sure they'll try to make it look good. But if we start getting near 10% unemployment and continued negative GDP, there isn't going to be much they can do to hide it.
I, for one, am proud of the State of New York for spending our state into a $5 billion dollar deficit. It shows that we still excel at something anyway. The good news is that we can't sell the Statue of Liberty, so she's pretty safe. But everything else may be up for grabs in a few months. I am waiting for the great real estate giveaway of 2009. Real estate prices are down 25% and I just read last week that NYC will be caught up in the next wave (or tsunami) of foreclosures. I think I will keep my eye out for that cheap Park Avenue Penthouse I have always dreamt about...Instead of me dreaming about how the other half lives, they are wondering if they can survive the way we live. Sad really.
Bev, if it's any consolation, I believe the democratic legislators in my state would gladly sell the Grand Canyon if it meant they could fund more of their pet projects.
Andrew, you're right about that but can you just see the spin? Unemployment is a good thing! It means you can take the time to make a career change, move back with your parents, go back to school, travel the country! Oh la la! I'm already seeing those stupid types of stories in my own hometown newspaper.
Writer X, I can definitely see the spin now. They are going to tell us how the numbers aren't as high as they seem, and that unemployment is how economies grow and get stronger, and they'll talk about how they've extended benefits so that everyone is protected.
Although, today, they started talking about their concerns about a "jobless recovery." Interesting.
Bev, No pony. . . no prince. . . no Flintstone vitamins. . . no Park Avenue Condo? The horror. . . the horror. :-)
You're right about NY. If California weren't such a basket case, we would be talking about the disaster in NY right now.
great as in good? or great as in LARGE?! The Great Recession! (did you just hear an echo echo echo?)
Bev, I am actually considering buying a house while prices are down. I figure putting my money into a house is going to get me through this better than having money in a bank in a couple years. The dollar isn't going to be worth much. :(
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