Recessions are natural in any economy and are commonly defined as two or more successive quarters of negative economic growth. Since the end of WWII, the United States has experienced 10 recessions – each with its own unique impact.
And in December 2007, the U.S. entered a recession unlike any other.
The Great Recession
After six consecutive years of significant economic growth – largely spurred by a hyper-inflated housing market – the U.S. economy crashed into an 18-month recession. Worthy of its name, the Great Recession was the worst U.S. financial crisis since World War II. While the foibles of those who played the housing market are well documented, what was it that made the Great Recession so bad?
The Great Recession was not only the longest recession but also the hardest on jobs. More jobs disappeared in those 18 months than in any other post-WWII recession. In fact, jobs continued drying up even after the recession was officially declared over.
Idaho did not see month-to-month employment gains in the economy until December 2009, six months after the recession officially ended. By then, available jobs in Idaho had fallen for 25 consecutive months, a total loss of 53,000 jobs from the prerecession peak.
Of the industries that experienced jobs losses during the recession, goods production was hit hardest. From 2007 to 2009, nearly 30,000 jobs were lost in that sector alone, accounting for more than 63 percent of the total jobs lost. Idaho construction jobs fell more than 33 percent while durable manufacturing lost more than 26 percent.
Agriculture, utilities, educational services and health care were the only major private sector industry groups with positive employment growth during the recession.
Idaho wages saw next to no growth during and since the recession. According to the Census Bureau’s American Community Survey, median household income in 2007 was $46,253. In 2013, median household income was just $46,783. Over those six years, median household income grew a meager $530, up 1.2 percent from 2007 or an average of 0.2 percent per year. Inflation, on the other hand, grew an average of 2.1 percent per year, meaning the spending power of Idahoans has eroded since the recession began.
Based on the Bureau of Labor Statistics’ Consumer Price Index Inflation Calculator, median household income needed to hit $51,967 in 2013 to give Idahoans the same buying power they had in 2007. Instead, median household income fell over $5,000 short.
Following the Crash
Mirroring the recession, the recovery has been the weakest to date.
Following WWII, the average recovery time following a recession in the U.S. – the time it took from the end of a recession to achieve prerecession employment – was 16 months. The most recent recovery took 58 months, more than three times the average recovery time. The 2001 recession had the second longest recovery of 37 months.
Even after the most recent recession officially ended, the number of people working continued to dry up throughout the country. Beginning in January 2008, employment in the United States fell for 25 consecutive months. The U.S. did not experience month-to-month growth until March 2010. From the beginning of the Great Recession, total employment fell 8.6 million – a 6.8 percent decline. The economy did not reach prerecession employment until May 2014, 77 months after the recession began. Though not as severe, Idaho’s economy also suffered significant employment losses.
From the recession’s onset, Idaho’s employment fell for 25 consecutive months through the end of 2009 – six months after it ended. By December 2009, the number of employed Idahoans was off 53,000 from its peak, down 5.1 percent and employment did not fully recover until September 2013, 69 months after the recession began.
Similar to employment, household income struggled to rebound following the recession. In 2007, Idaho’s median household income was $46,253. By 2013 it increased to $46,783. While income grew by $530, or 0.2 percent per year, average inflation was 2.1 percent per year. As inflation outpaced median household income by 1.9 percentage points, Idahoans’ buying power was significantly reduced. Based on the Bureau of Labor Statistics’ Consumer Price Index Inflation Calculator, the average Idahoan’s buying power has fallen more than $5,000 since 2007.
Global Economic Slowdown
While the U.S. is not as susceptible to global turmoil as other economies, it is far from immune. Poor global performance could slow the U.S. economy as well. Given some of the current economic struggles abroad, continued growth in the U.S. may become more difficult.
Japan has the third largest economy in the world in terms of GDP and is one of the largest importers of American goods. Since 2010, Japan imported an average of $111.6 billion in U.S. goods and services per year. Japan, however, appears to have entered yet another recession. In response to increased sales taxes, Japanese consumers have cut back spending. In the second quarter of 2014, Japanese GDP fell 7.3 percent followed by another 1.6 percentage decrease in the third quarter. Should Japan struggle to pull out of the recession, the demand by Japanese consumers for American goods will decrease. As the yen depreciates against the dollar, American-made goods become more expensive.
Plummeting oil prices could also have a negative effect on the U.S. economy. In the short term, lower prices have had mostly positive impacts in the U.S. and Idaho. Since November, Idaho’s gas prices have fallen 37 percent. This acts as a tax cut, keeping more money with consumers to be spent elsewhere, further boosting consumption. Production costs have also gone down for firms that use oil in production. With every winner, however, there is a loser.
Countries and businesses that depend heavily on producing and selling oil have been decimated by the price cut. As oil dropped below $60 and $50 per barrel, currencies of big oil exporters plummeted. Currencies of Norway, Mexico and Russia have hit multi-year lows against the dollar. The Russian ruble alone has fallen more than 30 percent since the beginning of 2014.
The stock market has also seen significant movement as a result of the prices. Fortunes have been lost by companies heavily invested in energy. Energy companies had the worst performance of any group in the Standard and Poor’s 500 over the last month as stocks were down 13 percent through December.
The European Union is also struggling with the dropping oil prices. The Eurozone is currently fighting deflation as prices fell 0.2 percent in December from a year earlier, which is the first price drop since 2009. Should prices continue to drop, the Eurozone could quickly be thrown into recession as consumers freeze spending because they realize that what they do not buy today will be cheaper tomorrow. Deflation also heavily impacts borrowers because their debt becomes more difficult to pay off.
Since WWII, the average expansionary period, as measured by the National Bureau of Economic Research, has lasted 58.4 months, with the longest lasting 120. The current U.S. expansion has lasted 67 months. While U.S. appears to be safe from any immediate recession, there is some cause for concern. Minutes from the Federal Reserve’s recent policy meeting included several references to the urgency U.S. officials and market participants are placing on new policy actions to counteract slow growth outside the United States, especially in the Eurozone. Should the global economy continue to struggle, the U.S. could see its own economy begin to slow as well.
Christopher.StJeor@labor.idaho.gov, regional economist
(208) 557-2500 ext. 3077