The recession ended today, Friday, April 30. At 8:30 a.m. to be precise.
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 https://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.
Jim… I’m reading all my proxy materials and am not sure of this income issue you speak of. I mean CEO pay is going up in double digit %s.
Agree on fixing the economy and getting away from old fixes. We need to forget Housing as the key to economy. It is bogus. Focus on small business growth.
Since the recession is over, does anybody have insight on when to put new money back into the oil sector? From Jubak’s book, JUBAK PICKS, he speaks about peek oil. China has over taken the US on car sales, so the glut of oil in a recovery won’t last forever. Do any of you have theories on when to start positions in SLB, XOM, BP, or CHK?
FunMoney suggested to ED to travel outside the US to obtain a “perspective on Americans.” Basically we are envied and disliked at the same time. We meddle too much in the world to maintain balance of power to keep our overall power. See book The Next 100 Years.
JohnErskine suggested to “take a big chunk of your money out of the country” when Ed travels out of the country; “it will be a lot safer.” The US government makes you report any money you have in excess of 10,000 USD outside the country. The privilege of being a US citizen means you pay US taxes outside of foreign tax credits no matter where your money is working. This defies logic of course. Taxes are paid to support the infrastructure from which your money is working within and profiting from. IMO, money working outside the US has nothing to do with the US infrastructure. IMO, taxes should only be paid where the profit is being generated.
GlossWizard wrote “it’s time …kick it old school, (to) start making products.” The problem is that manufacturing costs are way too high in the US due to taxes and the high cost of labor. When you can broker a deal for lower taxes and your non-degreed labor is paid 0.95 to 1.1 USD/hour and your educated labor is only a few more times that, why would you want to start a new business in the US?
As referenced in the recent movie, THE BOOK OF ELI, some people kill for what we throw away. We are too spoilt and have too high expectations for life. We expect our government to give us entitlements for which we cannot support long term.
Greedibanks wrote about “streaming entertainment.” Greedibanks is right. The US wastes many productive hours a week on entertaining themselves versus being productive: working on their relationship with their spouse, training their children, continuing their education, volunteering, and making a living. We are losing our edge in the world. Our power is diminishing and our kids and future generations in general will pay the price of our excesses. We can change this, but each of us have to do our part.
I apologize for the soap box speech. Back to the business at hand; stock picking. 🙂 Any thoughts on oil picks and when it’s time to get back in?
To upickem, your a a little too paranoid saying that the R/P are controlling us through streaming video — the masses are entertaining themselves with streaming video; buit the R/P MAY very well be hoping the great Recession goes on and on. As John K. Galbraith said in his book The Good Society, the wealthy really prefer recession and the unemployment that usually goes with it, over a high-growth and high-inflation scenario which would eat away at their net worth. Now THAT is a dirty little secret Ben Bern. wouldn’t reveal…
I am NOT interested in BP. The potential losses are too great.
However GS is a different matter, though its stock may suffering for a while. All the noise about GS are political including a potential criminal case. It’s election year. Politicians need money and votes. Once election is over, all the noise will settle.
I have a sister, government employee, 125k a year for farting,, or doing somthing..
Her husband is a retired school teacher, age 55.
Between them, 7 collector cars, 1 Jaguar convertable, 3 houses, 2 airplanes, and multiple trips to Europe.
What’s the point ?
What recession? Some people never even felt it.
In my opinion, this time it’s different. All boats will not lift. The R/P boats will lift, the yachts will float but the smaller boats will be swamped. I think this time a great many Americans will be poor and unemployed for the rest of their life while the R/P sail happily off into the sunset.
The recession is over-for the rich and powerful (R/P). During the Great Depression the R/P did fine, the rest got hurt. Forget about unemployment, high tuition, lack of funding-the R/P have plenty. The R/P run the country and the world to their own benefit and will continue to do so. I would guess well diversied in stocks, bonds, cash, gold.
They will keep the masses assuaged with streaming entertainment (AKAM anyone?) and turn them all into “couch potatoes”, or they can gamble their money away (WYNN anyone?).
Today, we see that the R/P saved themself first when the Great Recession started and they are continuing to do so, while telling the massses that they are using the tools that got them out of the Great Depression and that they will work today and we will all be saved.
alphasigmookie;
Interesting point, normally economic recovery should be stronger at this point. But, overtime, inventories should be reduced if economy begins to pick up (even if it is slow,which may be better). Construction which uses materials is at a standstill because of the surplus of homes and buildings, at some point we will, even with slow growth, use that inventory and new construction will begin,
Does that make sense????
We just ended the bubble decade, what is up with all the bubble’s???? Loose money??
RE; Stock Market-I was told; buy on conviction, don’t wait for confirmation!
Ed – The impending loss of the Bush estate tax exemptions will pose a huge problem (again) for small business and small farm families. This will force sales of these enterprises, instead of being able to pass these on to the next generation. This includes further job losses as these businesses disappear When you do travel out of the country, take a big chunk of your money with you to put it somewhere else; it will be a lot safer.
Mortgages
comments by greedbanks are true.
Mortgages
Jim always cuts through to the real issues, without being political. But, in the real world, there is politics, and the politicians now in office are much much more concerned with staying in office than solving our real problems. And when they finally can no longer avoid addressng an issue, we know that the chances for a really constructive solution to get through the pipeline of both houses is slim to none. We are in a state of emergency but without a government that really has a mandate to force needed changes.
Hi Jim! I am now getting laid off because the recession created a slew of unemployed professionals who are willing to work for less money. My company decided to hire 2 professionals for the price of me. Isn’t that lovely? Love your article! Sincerely, Shauna
Ed,
If you are trying to correlate Keynesian stimulus spending following an economic downturn, with the frequency of economic downturns, I don’t see the correlation.
I think the problem lies with the sense of complacency we all get when the economy recovers. Once we have climbed our way out of economic troughs, we fail to take the next steps to prevent or limit economic disasters. We seem to forget to try to correct the system once things have stabilized. Whether it’s eliminating oversight, leverage and capital reserve requirements under Bush Jr., or increasing our dependence over the last couple years on “financial services” as our primary export to the world, we fail to come away from economic crises with a vision of what to do next. I actually want to see our government spend MORE in certain areas. We should be heavily subdizing new energy tech., internet bandwidth growth, biotech, etc., so that we can actually have industries that employ people and have some form of social utility.
Hi Coach,
Another excellent post which cuts through the
miasma of invented hope by talking heads on
business channels.
————-
Request Jim,EdMc Gon , STL , Run 26.2 to
please share their views with all of us.
——————
A side topic question on Iraq oil fields prospects
for Schlumberger, Baker Hughes , Weatherford , and Halliburton.
Got the idea from M* website here:
http://news.morningstar.com/articlenet/article.aspx?id=331941&pgid=stockarticle
Thanks a plenty for all the info
Ed,
What can they do? The American people are only human. The economy runs in cycles of coarse, but when you have a really bad one what can you do different.
But we can look at history and history shows that when there are no great inventions that people want people quit buying. (thats short but I’m trying to keep it short)
Things in the 90’s for the boom cell’s phone’s, dvd’s, cd, and not to forget computers and houses. (houses cause credit got easier to get) What’s next?? I’ve got 2 computer’s (I built) ordered a new laptop for the wife to replace our 7 year old one. Not to forget I have ton’s of dvd’s we don’t even watch because of the new dvr cable box.
And the new stuff is just making the older work better. I don’t need the next apple ipad.
So my question is what is next? and until there is a next the economy will be slow but at least people are working.
I did a little more digging on the last 2 GDP reports, seems when you remove inventory builds the growth rate for the last 2 quarters were 1.6 and 1.7% vs. 5.6 and 3.2%. Also reduction in government spending (read stimulus running out) subtracted 0.4% from GDP. Going forward I don’t like these trends at all. Inventories will equalize at some point and government spending has nowhere to go but down. Given how far the markets have run in the past year along with the odds of bad news, looks like a great time to start taking profits and getting defensive IMHO.
Preach on, Jim, preach on!
Scottrade has just started to offer international trading. Info on their web page
Jim – MIDD is getting close to your sell point, do you foresee an update on it soon?
Thanks!
To EdMcGon, please get out and travel outside of the US. Take some of your investment profits and go somewhere, anywhere, even if to Canada or the Caribbean. You will appreciate it and get a different perspective on “Americans.”
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.
Can someone explain this stat? The net asset value is that over and beyond the debt they have? Just 88,000? So the people in the US in this range average $88000 of assets above the debts they have. If this is true then sometimes I think we forget how good we have it?
Cheer up Jim! May flowers and all that.
We do need to start building small businesses here. We need to invest in them and lobby to make sure jobs stay here and companies make responsible decisions for the good of the country not just for the good of this quarters earnings.
All do respect grindy2424, globalization is fracked up. It only works when everyone plays fair. China doesn’t play fair.
Its time we innovate and kick it old school, start making products in US factories that are consumed domestically and exported abroad. Time for US businesses to reconnect with US workers and realize that low cost at all costs just costs too much.
Ed, when that happens, consider living in “Other land” (Tad Williams)
Hello Jim,
so now, you have the GDP numbers (provisional, granted); as you say, I am 3 years older, so, give me as much notice as possible to let me know whether it’s time to run for the side lines.
grindy,
There are plenty of Americans who have done what you suggest, and made good money on it. But obviously, not nearly enough.
Sadly, I’ve never had the opportunity to travel to another country, but I have found there is plenty of information on good international opportunities if you’re willing to dig deep enough on the internet.
One thing I would love to see is an international stock exchange that trades 24/7. Don’t be surprised if we see that in our lifetimes.
Of course, when that happens, I can totally forget about having a life…
Ed,
I’m definitely with you on that one! I a few things I see we don’t do..
I think something we need to be doing as part of our education is how to work with a number of different cultures (Americans are notoriously bad at this!). This will start to open up a lot of investment opportunities in foreign markets.
More study abroad/gap years. I work for an international company and we look extensively into different opportunities in foreign markets. Maybe of these I have spotted just simply traveling a lot to different regions. Opportunities are there. The US is exceptional at efficiency. They are unable to capture opportunities in these markets because of our lack of experience.
Look at how foreign cultures are able to take our knowledge and capitalize on it (skills transfer). We can do much of the same…….. We need to get with the game about globalization
RM,
I dumped all my oil positions a few weeks ago when Jim did his post about OPEC cheating on their production. Fortunately, I got out of BP with a small profit.
Jim,
One thing you didn’t mention is that we are using basically the same economic solutions we’ve used over the past several recessions. Seeing how the recessions seem to be getting worse each time, I’d say it’s time to kick out the economic doctors who keep prescribing the same medication every time we get sick. We need an economic second opinion!
Off topic …… for EdMcGon,
What’s your take on BP now? You called it a bargain with its high dividend + low P/E and of course rising oil prices.
Plunged 7% Thursday and will probably plunge a lot more because under the Oil Pollution Act, BP pays for all the clean-up, etc.
Thanks…. and have a great day!
Jim, excellent post. I pardon you for not getting too exited. For entreprenuers (and much of the American public, for that matter) the inevitability of higher taxes will be another headwind for the economy going forward. I guess since goverment spending is accounted for in GDP numbers we should all rejoice, no?