The Recession is Over: Long Live the Recession!


According to the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), the recession ended five years ago this month. You may be excused for not feeling like a big celebration, since wide swaths of the country remain mired in the aftereffects of the worst contraction since the Great Depression, but there has been progress on most fronts. Let’s start with a refresher on how the NBER determines the onset and conclusion of recessions. Despite the oft-referred to rule of thumb that a recession occurs when there are two consecutive quarters of economic contraction, the Dating Committee does not have a fixed definition of economic activity. It examines and compares the behavior of various measures of broad activity, including: real GDP, real income, employment, industrial production, and wholesale-retail sales. According to NBER, the so-called Great Recession began in December 2007 and lasted until June 2009. At 18 months, it was the longest of any recession since World War II.

Here’s where we stand in some big categories since the Great Recession Ended:

Jobs: In June 2009, the unemployment rate was 9.5 percent, on its way up to a peak of 10 percent in October 2009. The rate now stands at 6.3 percent and total employment is just a tenth of a percent below the pre-recession peak. As of April, there were 113,000 fewer total jobs, which will likely be recaptured when the Bureau of Labor Statistics releases the May Employment report on Friday.

Still, the progress is murkier on other fronts. There are still 9.8 million Americans who are unemployed and 3.5 million long-term unemployed, who have been out of work for more than six months. Unfortunately, only about 10 percent of the long-term unemployed find jobs each month, a metric known as the “job-finding rate” - among those unemployed six months or less, the finding rate is nearly 25 percent.

Also, the participation rate, which measures those in the labor force and those actively seeking employment, has dropped to 62.8 percent, three percentage points below the June 2009 level and the lowest since 1978. Part of this is the effect of boomers retiring (probably about half of the reduction) but a big chunk is due to workers who leave the labor force because they are discouraged.

There has also been concern about quality of jobs created, which have been heavily concentrated in lower-wage industries. The food services and drinking places, administrative and support services (includes temporary help), and retail trade industries are leading private sector job growth during the recovery. These industries, which pay relatively low wages, accounted for nearly 40 percent of the private sector employment increase since the recession ended.

Income: For those lucky enough to have jobs, the financial crisis and recession put a dent in median household income. According to Sentier Research, April 2014 median household income 2014 was $53,043, 4 percent lower than the median of $55,261 in June 2009.

Economic growth: In the second quarter of 2009, Gross Domestic Product contracted by 0.3 percent, but in the third quarter of 2009, the economy actually grew by 1.3 percent. Growth has averaged just over two percent for the past four years, making this recovery sub-par, compared to the annual average post World War II growth rate of 3 to 3.5 percent.

Stocks: On May 29, 2009 the S&P 500 closed at 919. On Friday, the index closed at a new all-time closing high of 1923, more than doubling over five years.

Housing: While stock market indexes bottomed in March 2009, it took the epicenter of the crisis, the housing market, far longer. House prices peaked in 2006, then reached bottom in early 2012. National house prices are up 25 percent from the post-bubble low, but still remain down 17 percent from the peak. Additionally, homeowner equity as a share of household real estate continues to move up with rising house prices and falling mortgage debt, although it still remains about 8 percentage points below its 1990 to 2005 average, according to the Financial Stability Oversight Council’s (FSOC) annual report.

Debt: The FSOC report also noted that Americans have reduced their overall loan burdens. As a result, they have steadily become more current with their debt repayments. “Since 2009, the percentage of household debt that is delinquent has decreased from 12 percent to 7 percent, but still remains significantly above pre-crisis levels."

Bottom Line: Slow, tepid, lukewarm, weak…take your pick…any are appropriate words to describe the five-year period since the end of the recession.

MARKETS: Despite the lackluster recovery, US companies are still profitable. According to Capital Economics, the ratio of domestic profits after tax to gross value added (GVA) in the US non-financial corporate sector hit its highest level in 63 years in Q1. That profitability, combined with an accommodative Fed, pushed stocks higher for the week and the month.

  • DJIA: 16,717, up 0.7% on week, up 0.8% on month, up 0.85% YTD
  • S&P 500: 1923, up 1.2% on week, up 2.1% on month, up 4.1% YTD (closing high)
  • NASDAQ: 4,245, up 1.4% on week, up 3.1% on month, up 1.6% YTD
  • 10-Year Treasury yield: 2.47% (from 2.52% a week ago)
  • June Crude Oil: $102.71, down 1.6 % on week, up 3% on month
  • August Gold: $1264, down 3.5% on week, down 3.9% on month
  • AAA Nat'l average price for gallon of regular Gas: $3.67 (from $3.61 a year ago)

THE WEEK AHEAD: Just like clockwork, it’s time for another jobs report! Analysts expect 220,000 jobs were created in May and the unemployment rate will tick up to 6.4 percent from 6.3 percent.

Mon 6/2:

Apple Worldwide Developer Conference

10:00 ISM Manufacturing

10:00 Construction Spending

Tues 6/3:

Motor Vehicle Sales

10:00 Factory Orders

Weds 6/4:

8:15 ADP Private Sector Jobs

8:30 International Trade

8:30 Productivity

10:00 ISM Non-Manufacturing

2:00 Federal Reserve Beige Book

Thurs 6/5:

ECB/Bank of England rate decision

8:30 Weekly Jobless Claims

12:00 Federal Reserve Flow of Funds Report

Fri 6/6:

8:30 June Employment Report

3:00 Consumer Credit