5 Trends in the Post-Recession Economy
Analysts weren't joking when they called it the "the worst U.S. economic calamity since the 1930s."
Since five years ago when it started, the Great Recession has hit the United States like a hurricane, erasing trillions of dollars of wealth, destroying more than 8 million jobs and eroding value from tens of thousands of homes. More than half of American adults lost a job or saw a cut in pay or hours, and almost everybody felt the impact.
Thankfully, recovery is on the horizon. The first significant rebound in U.S. economic activity is finally underway, and growth is expected to exceed potential over the next few quarters. For entrepreneurs and small business owners, navigating this ever-evolving economy is a challenge that can make or break their business. Now is the time to examine the trends and prepare for the post-recession economy.
From a global perspective, the United States is once again the main driver of global growth. As lackluster as the U.S. recovery has been, our economy's recovery has been much better than that of debt-burned Europe or even stagnant Japan. In fact, despite its size, the U.S. economy is expected to outpace three of the world's top five economies--Japan, Germany, and France. Not one of them is projected to even come close to matching American growth, which economists expect will be about 3% for the rest of this year and next.
Jobs Are Back
The economy reached another major milestone last month: All 8.7 million jobs lost in 2008 and 2009 have now been regained. But although the nation's payrolls are back to their previous high, they haven't kept pace with growth in the working-age population over the last few years--so younger job seekers and recent college graduates are still feeling the pinch. It's also important to note that the share of middle-income jobs has been declining, reflecting a polarized labor market that offers ever-bigger rewards to those with specialized knowledge and skills.
Consumer Spending Ticks Upward
Consumer spending is hugely important to the U.S. economy--in fact, personal consumption involves about 70% of U.S. economic output. It also represents a large portion of the U.S. gross domestic product, which, according to the government's preliminary estimate, grew at a healthy 4% annual rate in the second quarter of this year. Americans with jobs are starting to feel secure enough about their prospects that they are more willing to spend or borrow money to make purchases.
Accordingly, total outstanding household debt--like mortgages, home-equity loans, credit cards, auto loans, and student loans--have progressively improved since the recession to $11.63 trillion. Non-revolving credit--generally auto loans and student loans--rocketed upwards at a 8.43% rate in June. And although the financial crisis shook up the housing market, Americans feel pretty confident about their real estate. In fact, 40% of homeowners expect the value of their property to increase in the next year, while less than 10% anticipate values to decline in the next year. In this new environment, consumers are prudently spending more and lenders and borrowers are more willing to lend and take on more credit to finance purchases.
Loan Demand Rebounding
Stronger employment and gains in home values are giving U.S. households the confidence to borrow and make big-ticket purchases such as cars, education, and homes. But while consumer lending continues to rise, small business lending hasn't completely recovered to pre-recession levels yet. Despite this, growth has been consistent, and small business lending reached a post-recession high in June 2014. During the recession and even recently, many small-business owners chose not to bother applying for loans under the assumption that they would be turned away. But today, data shows that larger banks are now granting one in five small business loan applications, the most in the last 5 years. Meanwhile, small banks and credit unions are granting more than half of all requests they get from entrepreneurs, indicating that the spigot of capital is finally being turned back on.
American Confidence and Optimism
The Conference Board's July 2014 reading of consumer confidence is at its highest level since October 2007. Gains in the job market have fueled the recent strengthening in consumer confidence and spending, which is likely to continue into the second half of this year.
Meanwhile, a National Federation of Independent Business's report found that despite the anemic economy, business owners across the U.S. are cautiously optimistic about their future as well. The NFIB Small Business Optimism Index, which measures business owner's confidence, rose 0.7 points in July, to 95.7. Today, business owners are more confident than they were during the recession, and they're more willing to risk borrowing money to fund expansion--investments that generally occur when there is confidence in the future, and an optimistic sign. Despite the slow start to the nation's economic recovery, business owners and entrepreneurs are indeed seeing opportunity in the current economy, and as the recovery intensifies, we should definitely see business prospects continue to improve.
VINCE PASSIONE | Columnist
Vince is the founder and CEO of LendKey, driving the vision and strategy for the company while overseeing the executive management team. LendKey is a cloud based technology platform that enables any lender or investor to quickly, efficiently and securely create a customized lending program and build a portfolio leveraging LendKey’s marketing & operations services.