It is official now that the Great Recession of the first decade of the 21st century is over according to the National Bureau of Economic Research. How did this recession stack up compared to others? There have been four recessions in the U.S. since 1980. The downturn of 1981-1982 lasted 16 months, while the recession “lites” of 1990-1991 and 2001 were each eight months in duration. The latest recession lasted 18 months, which was a trend breaker.
In traveling the country, I have observed that the East and West Coasts and Southern economies are still suffering. The Midwest and particularly the Upper Midwest with the exception of a few states have avoided a direct blow economically. I often ask my audiences, “How many of you know of people out of work or losing their homes?” Two-thirds to three-quarters of people in audiences in coastal and Southern areas will generally give an affirmative answer. Contrast this to the Midwest where one-quarter to one-third of the audience raises their hands.
I would suggest that caution be taken concerning this recovery. Yes, monetary and fiscal policy – i.e. Cash for Clunkers, first-time-home-buyer credits and lowering interest rates – have had an impact. However, inventory build-up and stimulus spending is not sustainable.
The headwinds of the economy are the negative wealth effect; worries over taxes at the federal, state and local levels; and the pending regulatory aspects on business. In order to have a sustainable recovery, private and business spending must increase, which will create consumption and investment.
Factors related to the negative wealth effect:
- Household net worth is down 23% from its peak.
- Average credit card debt, auto loans and other consumer debts are $20,861.
- The average home mortgage is $201,236.
- Twenty-five percent of homeowners are underwater, meaning their debt exceeds the value of their home.
- Of 130 million total homes, 18 million homes are unoccupied.
The bottom line is that the recession may be over for some, but not for others.
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at [email protected]