Today’s Economic Situation: The Great Recession, The Recovery, Where We (May Be) Going? Principles of Macroeconomics 7/20/12

Today’s Agenda

Where We Are Today Where We Are Today Historical Perspective Historical Perspective Reasonable Expectations for the Future Reasonable Expectations for the Future Summary Summary

Headlines

Historical Perspective Recession Year Peak Unemployment Trough of GDP change Duration (months) % % % % %16 Average %10.8

The Great Recession Worst since the Great Depression. Worst since the Great Depression. Duration: 18 months (Dec 2007-June 2009) Duration: 18 months (Dec 2007-June 2009) 7 months longer than average 7 months longer than average Peak Unemployment: 10.2% Peak Unemployment: 10.2% 3.2% worse than average 3.2% worse than average Trough GDP change: -4.1% Trough GDP change: -4.1% 1.8% worse than average 1.8% worse than average

NY Times Headline

9 Great Recession vs. Great Depression Great Depression (1929 – 1933) Great Recession (2007 –2009) GDP Growth (%) -29%-4.2% Unemployment (%) 25%10.2% Inflation (%) -25%+2% DJIA Change (%) -89%-54% Bank Failures (#) 9,096 (50% of total) 137 (1% of total)

The Recession is over?

The recession is over? Officially ended in June Means the worst (trough) is over, does not mean the pain is over! We had two consecutive quarters of GDP growth. Still have unemployment of 8.3%, 14 million unemployed workers. Lots of major economic/social issues

Total Private Employment – U.S.

Total Private Employment - Ohio

Employment - % Change

Unemployment Ohio/National

Unemployment Youngstown/U.S.

Unemployment by level of education

How large is the output gap?

Jobless Recovery?

Manufacturing

Exports

Corporate Profits

Stock Market

Encouraging Sign for the Future

What has not rebounded: Housing Prices

What has not rebounded: Construction Spending

What has not rebounded: Firm borrowing

Household Debt

Real Wages

TFP–Measure of output changes not caused by observable inputs (labor and capital). Tells us how economy changes as a result of technology

Source: Bureau of Economic Analysis Federal Reserve Board, FOMC Minutes,

Projections for the future: Employment

Inflation Projections

Good News for You!

Summary Recovery is not as strong as we would like, but many encouraging signs. Recovery is not as strong as we would like, but many encouraging signs. Leading indicators remain strong. Manufacturing, Exports, and Investments have all grown substantially. Consumer debt has declined. Leading indicators remain strong. Manufacturing, Exports, and Investments have all grown substantially. Consumer debt has declined. Inflation is not an issue. Inflation is not an issue. Projections for solid GDP and employment growth. Projections for solid GDP and employment growth. Real GDP growth between 3-4%/yr., unemployment declines between 1.5-2%/yr. Real GDP growth between 3-4%/yr., unemployment declines between 1.5-2%/yr. Recoveries take time (especially after a financial crisis). Recoveries take time (especially after a financial crisis). This recovery is stronger than previous (2003) recovery This recovery is stronger than previous (2003) recovery If history is a guide, the growth during the recovery will be greater than the decline during the Recession. If history is a guide, the growth during the recovery will be greater than the decline during the Recession.

LEST WE FORGET THE TREND! U.S. Per Capita Income past 100 years