When the Post-Recession Recovery Will Finally Arrive at Your House

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When the Post-Recession Recovery Will Finally Arrive at Your House

A standard convention exists for assigning the beginning and ending dates of a recession, typically undertaken by an organization of economic researchers, the National Bureau of Economic Research (NBER); however the chronological end of a recession does not necessarily coincide with an immediate improvement perceived by households and individuals. There is conflicting news: many aspects of the economy are improving - namely the stabilization of the stock market and new sales of homes while on the other hand, unemployment numbers continue to be dismal. The likelihood is that whenever the recession does “end,” it will be a while before households “know” it.

Traditionally, one prominent indicator of the health of the economy is production (Gross Domestic Product). We are seeing indications that GDP might be improving. Nationally, construction of new housing was up in June and home sales have been on the rise recently; the home building and real estate industries are still experiencing their seasonal high times. We are also starting to see reports of profits within the troubled financial sector. Certainly, the once fickle stock market has appeared to stabilize somewhat, and consumer confidence with it.

While there are indications that businesses may be rebounding, however, the average household is still experiencing a different reality. On their heels of reports of improvements for businesses are reports of rising jobless claims and unemployment rates. The issue of individuals experiencing the recession recovery is complicated by the fact that unemployment numbers typically lag changes in GDP. In the Cincinnati area, the unemployment rate reached its highest in the 1 to 2 years following the bottoming out of national GDP in the last two recessions. This lag occurs because employers are reluctant to hire and fire workers lest the movements in profits, or production, are temporary.

Just as the first line of defense among employers was to reduce hours worked through unpaid furloughs and other reductions in the work week, as production picks up again we expect employers to reinstate the hours of existing workers. Once businesses feel relatively secure that the recovery and increases in output will persist, they will hire new workers to meet that increased demand. Additionally, discouraged workers, those who have given up looking for work amidst the seemingly dire employment landscape, will likely reengage in the job search once conditions improve, adding to the unemployment rate until they find jobs.

While these are the traditional, anticipated movements of the economy through business cycles, the policy changes at local, state and federal levels may also impact how the recovery percolates. For instance, in the Cincinnati area, the health care and social services industries now represent more than 13 percent of total employment in the region. Potential policy changes in the health care and health insurance industries may affect employment growth in these industries, as well as the growth of other related industries such as suppliers for and buyers of their products, in ways not yet understood. This will impact the region’s ultimate recovery.

The uncertainty that households face will ebb once the uncertainty that businesses perceive is reduced. So, some time may pass before the average household feels as though the recession is over. The composition of our region and certain policy changes may contribute to that uncertainty and will impact what our recovery looks like.

Jennifer Pitzer, PhD, is a Research Associate at the Economics Center for Education & Research, College of Business, University of Cincinnati.