This morning I opened up my Wall Street Journal to find out the recession is over. The National Bureau of Economic Research’s (NBER) Business Cycle Dating Committee, the group that officially declares the beginning and end of each recession, declared it so. Yet, it also cautioned that while the recession may be technically over, the pain will still remain for most Americans. Most notably, unemployment is set to remain high through at least 2013—two more years. The article gives a perfect eulogy for the recession: “It’s official: The 2007-2009 recession, which wiped out 7.3 million jobs, cut 4.1% from economic output and cost Americans 21% of their net worth, marked the longest slump since the Great Depression.”
Most Americans know that official announcements about recessions are a bunch of baloney. For instance, NBER didn’t declare we were in a recession until December of 2008—a full year after its supposed start. The fall prior to NBER’s announcement had seen the near collapse of the world economy as companies like Lehman Brothers, AIG, and Fannie and Freddie Mac fell. Anybody with a brain knew we were in a recession, and everybody had experienced its effects. Now, they’re telling us that the recession ended in June of 2009. Yet, the US has lost more jobs than it added since the supposed recovery began. Only think tanks and government agencies could be so officially stupid.
Over for whom?
My question is this: For whom is the recession over? It certainly isn’t over for the average American. The unemployment rate is officially at 9.6 percent. Unofficially, it is even higher because many Americans have been unemployed too long to even be counted. To top it off, those who have jobs have seen their incomes fall 4.2 percent between 2007 and 2009, and the percentage of Americans living below the poverty level rose to 14.3 percent. Finally, the gap between the rich and the poor is still widening. The top fifth of households now account for 50.3 percent of all pre-tax income in the US. That means the middle class is still shrinking.
Maybe when the NBER says the recession is over, they mean it’s over for the ultra-rich. After all, many corporations are now posting better than expected earnings reports and balance sheets are getting healthier. For instance, FedEx recently announced that their earnings more than doubled. They also announced that they’re firing 1,700 people. Why? I believe it’s because they know what you already know, the recession may be “officially” over—but it’s not really over. Is the recession over for housing? Not according to the numbers. Thanks to high unemployment, new home orders are down 15 percent over last year, foreclosures are still rising, and pricing is not recovering. People are predicting that the housing inventory, which is more than double healthy levels, will take up to three years to work through. There will be no recovery until that happens.
Though the recession may be technically over, in that the economy numerically isn’t contracting, it’s also not really growing. As The Wall Street Journal reports, “Real gross domestic product has made up only 2.9 percentage points of the 4.1% lost during the recession, while household net worth has recovered only 4 percentage points of the 21% lost…that means the government may need to continue providing extraordinary support for the labor market.” Because of this, many economists are predicting that we’ll have a double-dip recession. If that happens, the official recovery will really just be a merciful breather rather than a true recovery. And unlike previous recessions, long-term damage to the economy will result.
As I’ve stated before, all of this bad news can be good news—if you can change your mindset. For the financially educated, this is good news. For those who understand money and investing, a double-dip recession also means a double opportunity to buy more cash-flowing assets at bargain prices.
It can mean good news for you as well. If you missed out during the first recession, you will have a second opportunity to start building for your future.