October 29, 1929 – Black Tuesday. The beginning of The Great Depression. But with the new GDP numbers, we’re home free, right? Naked emperors seem to be spotted with greater frequency by a very large number of economists. The Gross Domestic Product (the end-value of the market value of all goods and services made within a year) rose by 3.5% in the third quarter of 2009. Weeeee! Better than a sharp stick in the eye and clearly a marked contrast to the 6.5% decline in the last quarter of 2008. It is clearly the first “growth” in the GDP in many quarters, and you’d think this is the absolute sign that the recession is officially over. Lots of people are telling you that and a triple-digit rise in the Dow shows that most on Wall Street believe the recession is over. I don’t. Well, maybe Wall Street doesn’t either; that triple digit gain became a triple digit drop the very next day.
I was feeling kind of out of touch with my feelings that the rise in the GDP was either exceptionally anemic to constitute a quarterly signal that the recession is over – usually, the first quarter of growth following a recession is two or three percentage points higher – or simply the wrong measure of the end of the recession. Sure folks will tell you that unemployment trailed for as long as 22 months after the last bigger recession in the early 90s, but maybe talking about a recession ending is less valid that looking at where we truly are as a nation, perhaps even as a global economy. We’re years away from returning to the unemployment rates of 2007.
I’m not even sure there is value in trying to measure the beginning and end of a recession (or managed depression), because that suggests we are headed back to where we were, even if unemployment takes a couple of years to repair. It might be more valuable for us to look at what has occurred in this economic meltdown as a reset of virtually every sector of our economy. We don’t go back to the days of 2007; we just start from a lower, more realistic value base (homes, stocks, jobs, etc.), face the fact that the financial strain probably eliminated (or began the elimination) of many archaic business sectors permanently, and begin anew with an entirely different expectation set. Growth with probably be in newer market segments.
I’m not alone in believing that if you pick the right numbers, you can most certainly declare the recession over. ABCnews.com (October 29th): “Treasury Secretary Timothy Geithner today said government rescue programs such as the stimulus and financial bailout had helped the nation's economy grow at an annual rate of 3.5 percent during the third quarter of this year, the strongest growth rate in two years, but warned that for many Americans, ‘the recession remains alive and acute.’” Alive and acute. Not so cute really, and let’s face it, the numbers look good for pretty artificial reasons.
The October 30th DailyDeal.com provides a slightly more realistic handle on where our economy really is, noting that “well over half of the gains are government related, as:
- 1.66 percentage points came from car sales in the form of cash for clunkers;
- Home building soared 23.5%, reflecting a combination of zero percent interest rates and first-time home buyers' tax credit. That was good for another 0.5 percentage points of GDP.
“On the other side of the seesaw, leading economic indicators suggest that we are still in recession mode:
- The Labor Department reported that jobless claims totaled 530,000 last week and that unemployment benefits fell to 5.8 million. However, next Friday the unemployment report is expected to show that the unemployment rate will reach 9.9%. Most economists project the jobless rate will exceed 10% by early 2010, according to Bloomberg.
- Consumer confidence reportedly fell to a three-month low this week as unemployment continues to rise.
- Home prices have been on a steady decline. However, the Case-Shiller index reported that prices are starting to recover and may have hit bottom. [OMG, good news? For real?] Household purchases have in fact increased, climbing to 3.4%, the most in more than two years. Yet foreclosures are still increasing, which could account for the rise in household purchases along with the decline in home prices.[ah, a reality check]”
And a few more from other sources:
- According to the Canadian Broadcasting Company: “WORLDWIDE SHIPPING IS NEARLY AT A STANDSTILL. Cargos are stuck on docks in China and other manufacturing centers due to absence of financing for import, especially in North America. Shipping rates are down 90% from six months ago and cost of chartering a bulk carrier is down from $200,000 to around $3,000 per day.”
- According to the Oct. 30th Washington Post: “September personal spending dropped 0.5 percent, the Labor Department said … as consumers closed their wallets after the cash-for-clunkers program ended.” Nobody is buying or restocking. Hmmm, that doesn’t sound like growth either!
As noted above, we are about to see the jobless rate, which is slowing, rise to the national 10% level, with the alternative measurement (looking at part-timers and fully unemployed who want full time jobs but don’t know where to look anymore) rising very close to 18%... far worse in States like Michigan and California. With employers not using the full labor capacity of their remaining workers and with many industries simply “going away,” recovery is not so much about filling the old jobs as it is finding new ones. We’re not educating our next generations particularly well, so don’t expect too much in those new arenas, but the indomitable American spirit will still provide many pleasant surprises. The recession isn’t over, but the reset is firmly in place. It’s just about resetting and managing our expectations as well, and that is very, very painful… and will be for a long time.
I’m Peter Dekom, and I approve this message.