By Monte M. Korn
(Material in this column is taken from and inspired by “Recession declared over—News it ended in 2009 comforts few,” by Jeannine Aversa, Associated Press, 9/21/10; and “Economic ride turns bumpier for the rich,” by Mark Whitehouse, Wall Street Journal)
It turns out the recession ended more than a year ago.
Feeling better now?
The panel that determines the timing of recessions concluded Monday that this one ended — technically, anyway — in June 2009, and lasted 18 months. The duration makes it the longest since World War II.
It may be over, but you won’t be hearing any cheers from the millions of Americans who are struggling to find a job. Or are worried about the ones they have. Or have lost their homes. Or are behind on the mortgage.
“Every single one of the individuals who wrote the report needs a serious reality check,” said Bob Johnson of the Queens borough of New York, who is 46, had worked in communications and has been looking for a job for more than three years.
Not that it’s the fault of the academics — in this case the National Bureau of Economic Research, a group of economists based in Cambridge, Mass. It’s their job to declare when recessions officially begin and end.
Politicians also case about when recessions begin and end. President Barack Obama, who inherited the recession — it began in December 2007 —found little reason Monday to celebrate that it had officially ended.
“The hole was so deep that a lot of people out there are still hurting,” the president said at a town-hall meeting sponsored by CNBC.
It’s not as easy to be rich as it used to be.
In the past, America’s wealthiest people barely felt the ups and downs of the economy. Over the past few decades, though, the roller-coaster ride has become more extreme for them than for any other income group, according to a new paper by two Northwestern University economists.
In the first year of the recession that began in 2007, the top 0.01% of earners in the U.S. saw their pretax income fall by an average of 12.7%, compared with 2.6% for all earners, according to an analysis of data from income-tax returns.
The richest also did better on the way up. In the four years leading up to the recession, their income rose at an annualized rate of 13.9%, compared with 1.8% for everyone.
On average, the people in the top 1% and 0.01% had pre-tax incomes of about $900,000 and $17 million, respectively, in 2008. So they were well able to absorb big losses.
Millions are still struggling to find a job, or worried about keeping one, or could loose a home or already did.
For Melody Brooke, a 55-year-old marriage and family counselor in Lewisville, Texas, it didn’t feel in her household as if the recession ended 15 months ago. Her household finances were in shambles at the time.
“It felt like the heat of it for us,” Brooke said.
Her outlook is starting to brighten. Her husband finally found full-time work about a month ago. And Brooke’s counseling business is picking up: She’s on track to make about $35,000 for the year.
For the rest of the country, the statistics are familiar and grim.
Since the recession began, 7.3 million jobs have disappeared. Nearly 2.5 million homes have been repossessed. Unemployment is at 9.6 percent.
The Organization for Economic Cooperation and Development figures the U.S. economy will grow 2.6 percent this year.
It would take growth twice that fast to drive down unemployment by a single percentage point.
Unemployment usually keeps rising well after a recession ends. That’s because it takes time for companies to gain confidence in the economy, know that customer demand will last, and add jobs.
But for the past few recessions, it’s taken longer and longer for unemployment to come down. In 1982, for example, unemployment peaked the same month the recession ended. After the 2001 recession, the gap was 19 months.
This time around, it’s been 15 months, and economists don’t expect unemployment to come down significantly anytime soon.
(To read the full articles, go to http://online.wsj.com for Mark Whitehouse’s article or http://www.legalnews.com/oakland/ archives/2010-09-22 for Jeannine Aversa’s article)
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Recession? Depression?
What’s the difference?
A recession is when your neighbor loses his job. A depression is when you lose your job.
The standard newspaper definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters.
This definition does not take into consideration changes in other variables.
For example, this definition ignores any changes in the unemployment rate or consumer confidence.
Second, by using quarterly data, this definition makes it difficult to pinpoint when a recession begins or ends.
This means that a recession that lasts ten months or less may go undetected.
The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) provides a better way to find out if there is a recession taking place.
This committee determines the amount of business activity in the economy by looking at things like employment, industrial production, real income, and wholesale-retail sales. They define a recession as the time when business activity has reached its peak and business starts to fall until the time when business activity bottoms out. When the business activity starts to rise again it is called an expansionary period. By this definition, the average recession lasts about a year.
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Monte M. Korn is an attorney practicing law in West Bloomfield, has been a member of the State Bar of Michigan since 1942, and is a member of the Probate and Elder Law Sections of the State Bar.
Monte Korn is the talk show host of “Open Line with Monte Korn” on radio station WNZK am690 every morning at 11 a.m. He can be reached at (248) 933-4334.
The material in the above article is the research of Monte M. Korn. The Detroit, Oakland County, and Macomb County Legal Newspapers have no responsibility therein.
