Economic Recession and Unemployment
Introduction Generally speaking, economy of a country is in recession not only when it is functioning with low capacity, but when it is directly shrinking. The phenomena that comprise this shrinkage can be various and obscure, so there is no way to say undoubtedly which of them indicates the recession. Two successive quarters of decreasing output are the most widespread sign indicating the phenomenon of recession, but this rule of thumb does not always work. When recession starts, Gross Domestic Product (GDP) is usually positive. The same reason explains why recovering economy sometimes can be confused with economy in recession. Real GDP and Family Income In June 2009, the National Bureau of Economic Research (NBER) reported that the recession is officially over.
However, real GDP growth has been decreasing for last three years. Hence, in 2010, GDP growth was 2.4%, and then in 2011, it was 2%; it was 1.6% in the first and 1.3% in the second quarter of 2012, pursuant to the Bureau of Economic Analysis (BEA 2012).
Median American family income had decreased about 6% by June of 2012 as compared to June of 2009. That is more than twice the fall of 2.6% that was observed in the course of the official recession from December of 2007 until June of 2009. In June of 2009, average American household income was 54,983 dollars, and by June of 2012, it decreased to 50,964 dollars. Thus, the loss in income per family comprises of 4,019 dollars.
Moreover, according to the National Bureau of Economic Research, considering current course of economic development the situations is not going to get better in 2013 (NBER 2012). Speculations about Double-Dip of Recession Economic recovery is disappointingly slow, and it is still slowing. Last week, Chairman of Federal Reserve, Ben Bernanke said that the American production-creating engine is “stuck in the mud” (Fontevecchia 2012). The production expanded at 1.9 % of the annual rate in the first half of 2012.
However, regardless of increase in auto sales and housing boost, analysts suggest the second half of the year will be worse (from roughly 1% to 1.5%). Moreover, the orders of durable production, such as engineering equipment, airplanes and heavy machinery declined 13.2% in August 2012 (Kadles 2012). For many people, these depressing figures are a sign that a double-dip of recession is on the horizon or, maybe, it is already there. The president of Hussman Economectrics, John Hussman is one o them.
In his press conference from October 2012, Hussman said: “We continue to infer that the economy has already entered a recession – something that will probably take several more months to be broadly recognized…” (Fontevecchia 2012). The ECRI (Economic Cycle Research Institute) studies economical cycles and tries to predict the recessions. The Institute has made a lot of researches and built up a profound and extensive database of economically related events that allow predicting recession and downturn. The ECRI claims that the economy of the U.S. in 2012 is in recession: “It has been a year since we predicted a recession …if not by the first quarter of the year, then by mid-2012.
But … the recession would not be evident before the end of the year…” (ECRI 2012) Unemployment RateFrom the beginning of 1948 to October 2012, average Unemployment Rate of the United States consisted with roughly 5.8%; its highest point of all times reached 10.8 % in November of 1982, and its lowest point in a record was 2.5 % in May of 1953. Officially, the unemployment rate in the United States increased up to 7.
9 % in October 2012. However, the official unemployment rate is identified as the number of people who registered at employment exchange and were actively looking for a job, so the number may actually occur much higher that official figure (Trading Economics 2012). Since June 2009 to September 2012, the population of working age grew by 8.4 million. With the same correlation of labor force as it was in June 2009; it is necessary 5.5 million of new worksites only to correspond with the aforesaid population increase (BLS 2012).
However, the data reports that only 787,000 worksites have been arranged, and all these worksites were generated in September 2012 (Trading Economics 2012). In addition, the BLS also informed that the amount of full time worksites decreased by 216,000 during the last months. The BLS emphasizes its point, “These individuals are working part time because their hours had been cut back or because they were unable to find a full-time job” (BLS 2012). According to the BLS, 12.1 million of unemployed in September plus 8.6 million of those who forced work part-time plus another 2.
5 million of people (the people, who were not considered unemployed due to bureaucratic issues); all together they compound 23.2 million of people. Considering that 582,000 unemployed people became employed during the month, by solving basic mathematical equation, it can be culculated that the unemployment rate is 14.7% (BLS 2012). Chance for Recovery The recovery from economic crisis is a long and complicated process.
During last six month, increase in jobsites was 97,000 monthly. Considering 23.2 million of unemployed people, it is obvious that such increase is insignificant and cannot accelerate the recovery. According to BEA (Bureau of Economic Analysis), real GDP is increasing up to 2.2% in 2012, yet only 1.
8% in 2013. Nevertheless, the one real strength of the American economy is tough slowly but steadily recovering real-estate market. Housing sector is the only hope for GDP to grow in 2013 (McBride 2012). Prognosis for 2013According to BEA, the chance is about 20% to 25% that the economy of the United States will enter a double-dip recession. In case of negative case scenario, the official unemployment rate would reach up to 9% and higher, real GDP would decline to 0.9% and, once again, real-estate market would collapse (Kadles 2012).
If Congress did not manage to prevent the fiscal cliff, it could become the catalyst of aforementioned negative events. Downcast household spending, depressed firms and the weak housing market will be undermined by the fiscal cliff, and, as a result, recovery will ultimately be turned in recession. Congress failing to overcome the current political and economic problems will trigger the sequestration cuts signed as a part of the Budget Control Act of 2011 (Fontevecchia 2012). In addition, the mistrust between the Democrats and Republicans and their inability to work together could cause both the payroll and the Bush tax cuts to expire. Therefore, all above mentioned events together can lead the U.S.
to a double-dip recession at the end of 2012 to the beginning of 2013. Conclusion Recessions are infamously hard phenomena to predict, and the thing about a recession is that nobody typically knows that it already happening, until it has been around for a while. Any economy is a complex system of moving gears that could accelerate the slowing down the whole machine. At the same time, except for some specific indispositions, the natural condition of economy is the development, and the natural conditions of populations is expansion, as well as the natural condition of science is discovery. Therefore, the recovery is a more natural way for the American economy than recession. Hence, even some of the gears force the economy to slow down; others like natural economic cycle, wisdom of experience and accumulated knowledge help it to come forward.
