09/11/2009: "Is the Recession Over? Yes, but . . ."
Almost everyone who has ever taken a long trip with children can recall hearing the pleading question, “Are we there yet?” The answer often varied from “Not yet” to “Almost” or “It won’t be long now.”
What answer can be given to an economically-related question such as, “Is the recession over?” Real gross domestic product, our standard measure of total economic activity, will almost certainly rise in this quarter. Thus, the simple answer is “Yes!” Given that most of us don’t eat, wear, live in or retire on the gross domestic product, however, it is doubtful that we will feel all that secure just yet. We’re in that early stage of the recovery where signals are mixed and the daily ebb and flow of information will point in every direction, but the weight of the evidence now clearly points to a comeback.
A few examples will illustrate this phenomenon. For the April-June quarter, productivity swelled at the fastest pace since the summer of 2003. The 6.6% rate was a far cry from the 0.3% noted in the first quarter of this year. That tells us that businesses are beginning to produce more, but that hiring hasn’t picked up yet (productivity is measured as output per worker). It is both an encouraging sign in and of itself, and a necessary precursor to hiring.
A mid-summer report indicated that home sales had picked up to the highest point in a couple of years. Contracts for pending home sales have now risen for six consecutive months. Although construction fell in July about 1.0%, seasonally adjusted single-family homebuilding climbed 1.6%.
In August, manufacturing achieved growth for the first time in more than a year and a half, and new customer orders climbed to a level not seen since late 2004. In addition, August sales figures for the auto industry showed a marked improvement. Even though sparked by the “cash for clunkers” program, it still was the first year-over-year monthly gain since October 2007 and showed us that, with a little encouragement, consumers would make major purchases.
Less than favorable data, however, can be seen in some areas. Foreclosures are still being announced in many parts of the country. Although factory orders increased slightly in July (the fourth consecutive monthly rise), orders for nondurable goods did not follow suit. Instead, they experienced the sharpest drop since December 2008.
Of special importance to the nation’s seniors is the news that no cost-of-living increase in Social Security is expected for next year. This situation is a change of pace from recent times during which recipients have become accustomed to the annual pay hikes designed to combat the escalation in the prices of so many products and services. With the recession putting a damper on inflation, there is no adjustment this year. On the other hand, overall costs have not risen either.
We have just celebrated Labor Day, which was originally established more than a century ago to honor the labor movement and publicly recognize its importance to the budding industrial revolution. There is no denying that American workers today are the best educated and most experienced and productive in the world.
Fortunately, the number of people losing their jobs has been declining over the past few months. Mass layoffs decreased 22% in July from June’s pace, and new jobless claims are dropping. Still, the total without jobs is staggering—more than six million people are now relying on unemployment benefits. Moreover, we are likely to continue experiencing significant job losses in the next few months. Hiring is always one of the last indicators to turn positive during a recovery. Employers want to feel confident that the upturn has staying power before committing to new jobs.
Thus, there is an abundance of evidence that we have made our way through the worst of the recession, and that a technical recovery (growth in gross domestic product) is underway. However, that does not mean that rough economic times are completely over. With the job market sluggish, many homeowners concerned about their mortgages, and stock prices not fully restored, many folks don’t feel all that rosy just yet. In light of that situation, it seems that the best answer to our initial query is “Yes, the recession is over, but it may be a while before you feel it.”