A year after the financial meltdown, could the recession finally be over?
This article first appeared in the St. Louis Beacon, Sept. 12, 2009 - One year after the U.S. economy started its messy slide down the melting financial mountainside, some economists believe the bottom is in sight.
On Wednesday, for example, economists at the Federal Reserve offered this glimmer of hope that the U.S. recession is nearing an end: All but one of its 12 regions described recent economic activity as "stable," showing "signs of stabilization" or "firmed." The exception, by the way, was the St. Louis district, which offered a more cautious viewpoint: Economic activity remains weak here, but the pace of decline is "moderating."
Hold your applause, though, because the Fed also warned that any economic upturn was fragile and dependent on neo-stingy U.S. consumers deciding to let loose of more of their dollars – a prospect complicated by still-rising unemployment rates.
Also, private economists polled for a survey called the Blue Chip Economic Indicators suggested that -- after a loss of 6.9 million jobs -- the worst of the unemployment crisis could be over. They, too, warned that the national unemployment rate, now at 9.7 percent, would reach 10 percent in 2010, before gradually beginning to recede mid-year.
And from the U.S. Department of Labor comes this bad-news-good-news fact: U.S. employers cut 216,000 jobs in August, but that was the smallest jobs cut in a year.
So, are we feeling better yet?
According to an “index of consumer sentiment” by Reuters and the University of Michigan, we are.
That index rose to 70.2 this month, up from 65.7 in August, and exceeded forecasts that it would reach 67.5. The survey, based on 500 households, measures both current financial situation and expectations for the next six months. The reason for the unexpected increase in confidence: the slowing pace of job cuts.
On the other hand, CNN reported that a poll of 1,000 U.S. adults found 87 percent of those surveyed believe the U.S. is still in recession, with seven in 10 saying that things are going badly.
"Economists may be speculating that the recession is over, but don't tell that to the American public," explained CNN polling director Keating Holland.
Amanda Carlin, 26, of St. Louis who has been job-hunting for months said she has found her own glimmer of hope in recent weeks: several job interviews.
“I am hopeful that things are turning around, but it takes time,’’ Carlin said. “The mess we are in didn’t happen overnight, and it will not change overnight. The stock market seems to be turning around. Hopefully, once companies start making money again, jobs will start to pop up.’’
Are We There Yet?
As the polls suggest, Americans haven’t jumped on the “recession’s over” bandwagon yet. It’s the old adage, with a twist: If your neighbor loses his job -- or his house -- it’s a recession. But if you lose your job -- or your house -- it’s a depression.
It was, after all, the mortgage crisis that got the best of major U.S. financial giants like Lehman Brothers and Merrill Lynch last September and sent insurance behemoth AIG begging for billions of taxpayer bailout dollars. Though economists have disagreed widely on efforts to fix the sick economy, most agree that the mortgage crisis, now fueled by unemployment, remains at the heart of the recession and eventual recovery.
Even now, the news on the foreclosure front remains sobering.
Nationwide, 358,471 properties were at some point in the foreclosure process in August, according to RealtyTrac, which tracks foreclosure trends. That number translates to one in every 357 U.S. homes and represents an increase of nearly 18 percent over this time last year. Those foreclosures numbers have overshadowed this bit of good news from the housing market: Moderate increases in home sales, both regionally and nationwide.
Brandon Thabiti Sterling, 37, of St. Louis is taking a cautious approach to optimism because he knows people who have lost their jobs or are struggling to meet their mortgages. And, he has a family member in her late 50s who took early retirement but is now looking for work because she lost her retirement savings.
“In looking at my peers, I don’t necessarily see the end in sight,’’ Sterling said. “I certainly know people who consider themselves middle class, or beyond middle class, who have suffered.’’
Sterling, a self-employed consultant for nonprofit organizations, uses a “Star Wars” analogy to describe what he believes is happening.
“To some extent, it’s kind of a Jedi mind trick," he said. “Some of this is a self-fulfilling prophecy in that we do want people to feel optimistic. We want people to believe that we’re nearing an end. But to some extent, we also want people to be educated. We want people to be informed. And I don’t believe we’re at the bottom yet."
Sterling, who helps non-profits with tasks such as grant writing and communications, has watched their financial struggles during the recession. He worries that any economic recovery will be slow to reach the most vulnerable in society.
“They have gone from dire straights to something that’s even beyond that," he said. “Poor people will tell you that they didn’t reap any benefits of the economic boom -- life was pretty much the same for them. Maybe there were more nonprofits helping. Maybe there were more services for them to take advantage of, but they didn’t necessarily attain more self-sufficiency. We tend to leave those people behind."
Sterling believes Americans need to learn lessons from the financial mess, but, instead, he sees get-rich-quick commercials promising to help consumers cash in on hard times and foreclosed homes.
“I feel like a part of the reason why we’re here is that we’ve never asked Americans to really be responsible about how they manage their finances, how they live," he said. “We’re our greatest enemies a lot of the time. I’ve seen many folks with beautiful homes, wonderful automobiles, and I know they can’t afford those things. But the average consumer isn’t really trained to understand that economies do ebb and flow. Things change, and they have to be prepared for those types of situations."
The Good Old Days
While economists now trace the start of the recession all the way back to December 2007, it was the angst of last September that smacked the world to attention: Fed chairman Ben Bernanke and then-U.S. Treasury Secretary Henry Paulson scrambling -- pleading -- to convince Congress to pass a do-it-or-die $700 billion bailout of the financial industry.On Wall Street, the Dow -- and our 401ks -- took a ride on the express elevator. Going down ...
Even after the bailout bill passed and was quickly signed by President George W. Bush on Oct. 3, the surprises kept coming. Paulson stunned the financial world just days later when he changed his mind about how to spend the bailout bucks. Instead of purchasing toxic mortgage-backed assets -- his original plan -- the federal government would pump $125 billion directly into struggling financial institutions as a signal to the world markets that U.S. banks would not fail.
The house of cards was falling, sending shock waves through the retail and manufacturing sectors, and erasing jobs along the way.
The CEOs of GM, Ford and Chrysler swallowed their corporate pride and begged Congress for $25 billion in emergency federal rescue funds.
Still, the shock of those days has gradually passed. And one year later, recession-weary Americans seem poised to -- as President Barack Obama put it in his inaugural speech -- “pick ourselves up, dust ourselves off, and begin again the work of remaking America.’’
“I’m a little more optimistic now,’’ acknowledges Marc Carr of St. Louis, even though he isn’t convinced that the recession is over. He said he has used the economy’s “down time” to learn from his own financial experiences during the past few years, while preparing to take another shot in the future.
Carr, 27, said he closed his small women’s accessories shop at the St. Louis Mills shopping center in November 2008 after a two-year run that started well enough but felt the effects of the growing recession months before the big, financial collapse.
“I noticed that the stores that sold discounted clothing stayed busy, but as far as handbags and handmade jewelry -- people just completely stopped shopping with me," Carr said.
He now works fulltime at the downtown Left Bank Books store and has enrolled in the MBA program at Webster University. He would like to start his own business again, but this time, he says, he’ll have a smarter financial plan.
Carr doesn’t believe the recession is over, but he has noted shifts in consumer attitudes.
“I think people are still struggling, but I do think we’re at some sort of turning point," he said.
Abby Schwarz of Clayton is also seeing some positive signs. She has witnessed firsthand the struggles of the unemployed in her job as a recruiter for Staffing Solutions, a Clayton agency that places workers in administrative and clerical jobs in the financial industry.
“We follow the financial markets pretty closely, and things for us started down a little over a year ago,’’ Schwarz said. “In October 2009, as my company president put it, ‘It drove jobs in our business off a cliff and stayed there.’ "
But Schwarz says business has picked up in recent weeks, particularly in temporary and “temp-to-hire" positions.
“Our company has been in business a long time and been through recessions before," she said. “When things get a lot better -- I don’t think we’re there yet -- the demand is going to boom. We’re gearing up for that. But do I think the car ride’s over? No."
Schwarz says that while layoffs appear to have leveled off for the most part, and she is talking to more applicants who are finding jobs, she expects a real turnaround won’t come until 2010.
“I think we’re nearing a light at the end of the tunnel, but I don’t think we’re out of the tunnel yet,’’ she said.
Notes from the Fed
Here are some economic indicators from the St. Louis Federal Reserve’s Eighth District, as noted in the Beige Book, released Wednesday. The Beige Book serves as a sounding board for sources from a range of economic sectors and is based more on perceptions than on hard numbers.The Eighth District includes eastern Missouri, southern Illinois, Arkansas and parts of Mississippi, Kentucky, Indiana and Tennessee:
- About 58 percent of the retailers in the Eighth District saw decreases in sales in July and early August compared to the same period last year; 33 percent saw increases, and 8 percent saw no change.
- One-third of the car dealers surveyed in the Eighth District reported large decreases in sales over last year. One-third reported increases in sales (mostly attributed to the cash-for-clunkers program), and the remaining one-third reported no change in sales. About 46 percent reported more rejections of finance applications, but 12 percent reported more acceptances.
- July year-to-date home sales were down 8 percent in St. Louis. Permits for single-family homes fell 28 percent in St. Louis. Downtown office vacancy rates remained fairly constant. Source: The St. Louis Federal Reserve’s September Beige Book.
A year after the meltdown: Numbers to ponder
- Household income: The U.S. Census Bureau reported Thursday that real median household income fell 3.6 percent -- from $52,165 in 2007 to $50,303 in 2008 -- coinciding with the recession that began in December 2007. The decrease offset increases in income from the past three years.
- Poverty: The number of Americans living in poverty rose to 13.2 percent in 2008, up from 12.5 percent in 2007. That was the highest rate since 1967, according to the Census Bureau. * Unemployment: First-time claims for unemployment insurance fell to a seasonally adjusted 550,000 from 576,000 the previous week, according to the U.S. Labor Department.
- Foreclosures: 2,124 properties in the St. Louis area received a foreclosure notice of some type in August, an increase of nearly 32 percent over July, according to statistics compiled by RealtyTrac. It was, however, a decline of about 17 percent from August 2008.