The Great Recession

The Obama economy is shedding jobs. GNP is fading. The dollar is falling. And it isn’t going to get better any time soon, not with our current policies. Welcome, to the Great Recession. . .


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