Five years after the fall of Lehman Brothers, the evaporation of credit, and the collapse of the economy and stock market: Where does the economy stand?
In one sense, the economy is back where it started. Real gross domestic product per person has just about recovered to where it stood in 2007, around $50,000 per person in 2011 dollars. That still makes the U.S. the richest large country in the world, ranked seventh by the World Bank, behind smaller nations like Qatar and Switzerland. But the U.S. is not used to standing still. If growth in the last five years had been on trend, we would be approaching $60,000 per capita by now.
This is far from the normal "bouncy" kind of recovery we historically experience coming out of recessions. The chart below shows the annual rate of change in real (inflation-adjusted) GDP from the Federal Reserve Bank of St. Louis. The usual change after recessions (shaded) is above five percent, whereas this recovery is below five percent.
Still Behind On Jobs
Almost 2 million fewer people today have jobs than at the end of 2007. Last Friday, the Bureau of Labor Statistics reported that the labor participation rate fell to its lowest since 1978. Normally, a recovering labor market attracts more people wanting work. Instead, more people are opting out of the workforce.
Incomes have recovered and surpassed 2007, but the growth in income has been highly concentrated in the wealthiest households. The number of people on food stamps soared 70 percent over the past five years; one in five households now utilize food stamps according the Department of Agriculture.
And on the housing front, a strong recovery from the bottom makes headlines, but the equity value of America's homes has fallen from $13.5 trillion at its peak in 2007 to $9.1 trillion now, says the Federal Reserve.
Smaller Business Profits Hit Hard
The Inc. 500 show the challenges coming out of the "great recession." The Inc. 500 in 2008 had more than $18 billion in revenue; last year, that number was $14.1 billion. Employment in the Inc. 500 topped 57,000 in 2008. In 2012, it just passed 52,000. Corporate profits overall, on the other hand, have surpassed their peaks in 2007 because large companies have leveraged economies of scale and technology to boost margins.
What Can You Conclude?
The economy lacks vitality, but it is growing, and there are sweet spots within it. Pent up demand for housing and cars makes these industries look good for this year and next. Selling to the "1%" remains an excellent business proposition. Business-to-business looks to remain a key growth category. Business confidence has rebounded more than consumer confidence. Regionally, the southwest, northwest, and some southern markets show more economic dynamism than the northeast and midwest. But this economy is fragile. With home values still $4 trillion below their peak, the majority of households are not in a better financial position than they were six years ago.
Goldman Sachs predicts faster U.S. growth in 2014, but it's probably too early to tell. Decisions in Washington before year-end on tax policy and the budget, the next Federal Reserve Chairman, and mid-east military action may tip the balance for business confidence and the economy next year. If uncertainties clear out of the way, more hiring and capital investment could boost growth in 2014 and make the U.S. look more like the economic powerhouse it should be.