The Great Depression was a scary time for America. A time full of poverty, hopelessness, fear, and especially, unemployment. Of course as economies tend to do, we were able to create stability, improve employment, increase hopefulness, and get through the Great Depression. We proved that we truly are the “land of the free and home of the brave,” emphasis on the brave. If we were able to get through the Great Depression, we could get through pretty much anything the economy threw at us, right? Wrong. Fast forward to the Great Recession of 2008 and it felt like, once again, that there was no hope. No hope for economic freedom, no hope for stability, no hope for anything. It felt how the photo to the left probably makes you feel. Millions of Americans lost their jobs, and the world was impacted by Wall Street “hotshots,” who thought they knew everything and simply would never lose the “game” of life. Well, life should never be a “game,” especially when that game ultimately affects millions of people. Case in point — the housing crisis and the declared bankruptcy of the Lehman Brother’s. Wall Street was and is shady.
Since the 2008 recession, markets have been on the rise. Stock markets are looking strong, consumer spending habits are great, and unemployment rates are at an incredible low of 4.2%. That said, it doesn’t mean we should keep following the yellow brick road. I’m all about positivity, but it feels like we are replaying history. Before the Great Recession, Wall Street bankers were ignoring the “good” signs and thought, “hey the markets are hot, housing is through the roof (no pun intended), and we are making millions of dollars. Nothing to worry about here.” Meanwhile, thousands of people were starting to get big houses they couldn’t afford, and so the deep, dark rabbit hole began.
Are we ignoring the “good” signs again? If we look back at history, the truth of the matter is that we are overdue for a recession. Our “low” unemployment rate isn’t as low as we think, so it’s time to stop ignoring the “good” signs and start figuring out how to help our economy….before it’s too late (see picture below).
The “Good” Signs That We Are Ignoring –– Longest Economic Recovery
This is almost the longest we have been in economic recovery since a recession. If we look at history, we are due for another economic recession. History tends to tell a story, so why are we choosing to ignore it? While it is great that our economy has showed strength after the Great Recession, history proves that recovery can’t last more than a decade before seeing another economic recession. America has gone through 33 economic recessions, but the Great Recession was the first one that was as distressing as the Great Depression (hence the name).
Some economists are predicting another Great Recession after seeing such long economic recovery. What goes up must come down…? Even Barclays Capital is calling it a “Hakuna Matata” market. Everything is going up. The market isn’t worried” (Rapoza, 2017). Well, if I remember Lion King correctly, I started to cry when Mufasa died. All jokes aside, with everything going up, all the “good” signs are being ignored. This has been one of our longest economic recoveries, and even Janet Yellen, prior chair of the U.S. Federal Reserve believes we will experience more “major financial crises in our lifetime” (Rapoza, 2017).
While the length of economic recovery doesn’t really feel like an important indicator in the eyes of many people, it matters more than we think. Banks tend to “lower their standards over time [and] at the end at the end of very long expansions, banks and finance companies are willing to lend to almost anyone, because they become overly optimistic” (pbs). Kind of sounds like a similar situation to the housing crisis, doesn’t it? This is what is now happening with U.S. car loans. (Please see the example of how an industry can affect the economy, detailed in deck at end of presentation). According to Forbes, “a severe market crash will be followed by no growth in the U.S., possibly even two quarters or more of contraction.” Few are actually predicting this “crash” and ignoring the “good” signs similar to the 2008 Great Recession.
The “Good” Signs That We Are Ignoring –– Unemployment Rate
When the Bureau of Labor Statistics releases its employment information, many people are quick to focus on the unemployment rate since it’s a significant sign of how an economy is doing. Well, our economy is only showing “good” signs of low unemployment rates varying between 4.1-4.2%. Do most people, however, know what the unemployment rate consists of? The unemployment rate is the share of the labor force that is jobless, expressed as a percentage (investopedia). This percentage includes people actively seeking work. The percentage fails to mention the pool of people who are neither employed nor actively seeking work because of weak job opportunities (Economic Policy Institute). Thus, unemployment numbers are actually higher than we think. If we really dive into the numbers (which will be explained in more depth on the attached deck at the end of the post), we will quickly learn that we are leaning towards another recession. In fact, Trading Economics is already predicting a 6% or higher unemployment rate in 2020. Since October the number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.6 million, and it accounted for 24.8 percent of the unemployed (Economic Policy Institute). Continuing jobless claims in the U.S. increased to 1,957 in the final week of November, after being 1,915 the week prior (Trading Economics). People who are actively seeking work aren’t getting hired and are entering into a new pool of people, as mentioned above. These are a pool of people who aren’t being accounted for within the “good” signs of our economy.
The Ugly Truth
The truth of the matter is that we are overdue for a recession. The proof is in the pudding. This is the longest our economy has been in economic recovery, and it seems like our “low” unemployment rates are unparalleled, but we are ignoring the fact that so many Americans can’t find a job. The worst part is that it feels like President Donald Trump is not ready to handle an economic crisis. In fact, “Many Republicans in Congress are firmly against dramatically increasing the size of the federal budget and railed against the last stimulus bill. And given that interest rates are so low already, the Federal Reserve would not be able to cut rates by much” (The Atlantic). Seeing the trend that Trump is taking with his presidency, it is possible that he is the one landing us in our next recession, and he won’t be able to get us out of it. If our predictions are right and we find ourselves in an another economic recession within the next year, it will prove truly damaging for so many Americans. According to Forbes, 61% of Americans do not have enough money saved to cover six months of living expenses, 49% of Americans are currently living paycheck to paycheck, 68% of all respondents’ investment strategy does not account for a recession, and 64% of Americans do not have secondary sources of income. Essentially, if we land in another recession, YES we will get through it, but we will go through a lot of pain in the process. Back to hopelessness, back to more poverty, back to skyrocketing unemployment rates, and back to the pain of losing your economic freedom. I am not an economist, far from it in fact, but I do think it is important to inspect the “good” signs that our economy is projecting, so we can avoid repeating a traumatic economic history. Here’s to you America…. land of the free and home of the brave.
(This medium does not support the viewing of the deck that goes with this article. Please refer to your e-mail if you wish to view the supported deck).