Thanksgiving is my favorite holiday, because it is a time when we can give thanks for all of the blessings in our lives. I don’t want to trump the big stuff, like health, loving spouse, wonderful family, great country, but this is a money blog, so we can also express thanks for some of the positive developments in the financial world. It has been a terrible time for so many Americans and our collective hearts go out to those who have suffered financial losses during as a result of the Great Recession, which officially began six years ago. But there has been significant progress and to gauge how the country is doing, it is helpful to rely on data.
The National Bureau of Economic Research (NBER) Business Cycle Dating Committee, which is responsible for determining when recessions start and end, is somewhat vague about the specific variables on which the decisions are made. There is, however, a general belief that there are four key indicators that the committee analyzes: Gross Domestic Product (GDP), employment, industrial production and real personal income (less transfer payments). We should be thankful that each area has seen great progress, though probably not as fast as most economists would like.
GDP: At the worst point of the recession (Q2 2009), the economy contracted by 4.7 percent from the 2007 peak. Real (adjusted for inflation) GDP returned to the pre-recession peak by the end of 2011, and has hit new post-recession highs for six consecutive quarters. Still, we don’t want to paint too rosy of a picture, because the pace of the recovery (approximately 2.25 percent annually) has lagged the annual average post World War II growth rate of 3 to 3.5 percent.
Employment: The unemployment rate has dropped from a recession-high of 10 percent to 7.3 percent in October and millions of jobs have been created during the recovery. However, payroll employment is remains 1.8 percent below the pre-recession peak there are 11.3 million Americans out of work. While there is no doubt the labor situation remains dire, given where we have come from, it’s worth acknowledging the gains.
Industrial Production: This measure was down a staggering 17 percent in June 2009, but it has recovered smartly since then. While industrial production is still 2.1 percent below the pre-recession peak, it could return to the pre-recession peak by the end of this year/early next year.
Real Personal Income: This indicator has sorely lagged the others, a fact many workers will confirm. At the bottom, it was off 11.2 percent and currently stands over 3.3 percent below the previous peak. The good news is that as the economy accelerates, which many economists are expecting, incomes should finally start to increase.
In addition to giving thanks that these measures are improving, we should be happy that the housing market has finally been enjoying a recovery. Activity has increased and prices are up, which has helped current homeowners improve their equity positions. Real estate website Zillow reported that the national negative equity rate plummeted at the fastest pace ever in the third quarter, with 21 percent of all mortgage homeowners in an underwater state, down by one-third since its peak of 31.4 percent in the first quarter of 2012.
With all of the improvements that the country has seen, during this holiday season, it is important to recognize that there are still many who face severe financial difficulties. 16 percent of Americans – nearly 50 million people – are living in poverty. (An American family of four is officially designated as living in poverty if it earns less than $23,550 a year.) Even with households across the country feeling continued financial pressure, Americans donated an estimated $316.23 billion to charitable causes in 2012, down from the peak of $344.48 billion in 2007, but impressive nonetheless.