Between the Floyd Norris NY Times article and the NBER comments yesterday there has been quite a bit of chatter about the “end of the recession”. In my opinion, this is simply an absurd discussion and insulting to the millions who have lost jobs in the last 18 months. An economy’s true health can only be measured by the percentage of its citizenry that has a job that allows them to take care of themselves and their family. If you don’t have a job in this world life is damn hard. If you have a wife (or husband) and kids and no job you probably wish you didn’t have a life at all. Recent employment data shows (see here) that Americans haven’t been in this much pain in over 25 years.
The recent comments regarding the “end of the recession” are mainly fueled by vague economic indicators and the huge stock market rally. I think it’s less complex than where stock prices are or at what level the ISM index (for example) is at. In my opinion, if an abnormally high percentage of the citizens of a country are substantially worse off than they were before the recession began then how can it possibly be over? This is not some grand equation the economic geniuses at the NBER have come up with. This is pure common sense. 8.1 million Americans are worse off today than they were when the recession started. Try telling them the recession is over.
We have lost 8.2MM jobs during this recession and already investors are popping the champagne over last month’s meager 160K jobs gains. Granted, this could mean better times are ahead and that the stock market could be headed higher, but this still feels like a recession to a large chunk of the country (much more if we count those who have given up on the job search). And bear in mind that my simple definition of recession ignores the deflating wages (for those that actually have a job), declining consumer credit, below trend spending and record individual bankruptcy filings. All in all, the private sector is still weak.
Over the last 40 years the unemployment rate has averaged just 6.2%. At the current rate of 9.7% we’re still substantially above that level and that means an abnormally high percentage of the American public is having trouble feeding themselves and/or their family. To be honest, I am practically disgusted that such a discussion is even occurring when so many Americans are in so much pain. Are we still in a recession? Technically, perhaps we are out of a recession, but this still feels like a recession to many and that will persist until the unemployment rate declines SUBSTANTIALLY and wages begin to climb for the rest of us.
While the Obama administration has spent countless hours passing a healthcare bill, bailing out homeowners and paying banker’s salaries 10% of the country continues to struggle looking for a decent job. The math here isn’t difficult. If the unemployment rate remains high the country will continue to feel like it is in a recession. To most of us, prosperity begins with putting food on the table. Today, that is harder than ever. So let’s enjoy the stock market rally and the 50+ readings on the ISM. Just don’t pop champagne in front of 1 of the 10 Americans who are out of work. It’s not only insulting to your fellow countrymen, but EXTREMELY premature.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.