Operation recession recovery

Operation recession recovery

Slowly but surely, the economy shows signs of improvement

By Kit Stolz 02/16/2011

Feel like you’re living through hard times?

That’s because you are, in fact, living through hard times. The downturn that Ventura County and the world has experienced for the last three years looks like a bad earthquake – with continuing aftershocks – on the economic charts. Trend lines representing housing construction, employment, and overall income fell, leading to a 15-year high in the poverty rate in September. From the fall of 2007, when the stock market dropped sharply, through the spring of 2010, when unemployment in Ventura County peaked at 11.3 percent, we experienced the worst downfall in generations. Economists call it “the Great Recession.”

Why is it so much worse than past downturns?

Let us count the ways:

First, although numerically the economy began to grow again last summer, the 30-month recession, which began in December 2007, remains one of the longest on record. According to the National Bureau of Economic Research, only the 43-month recession beginning in l929 is longer — and that one launched the Great Depression.

California also tends to be hit harder by recessions than other states.

“If you look at the statistics, you see that California is always one of the last states to recover from a recession,” said Mary Navarro-Aldana, who heads a federally funded workforce training office in Oxnard. “California feels recessions until the very end.”

Unemployment in this recession is more serious and more widespread than in past recessions. College graduates usually were able to find work even during past recessions, but in 2009, unemployment for graduates ages 20-24 was at nearly 9 percent, double what it had been just two years earlier.

What came as a shock to the highly educated turns out to be old hat to most workers. For Ventura County last fall, the Bureau of Labor Statistics estimated unemployment to be more than 10 percent, approaching three times the number of unemployed five years earlier, in April 2006. It’s a reflection of a broad-based condition.

“In this country, we have 2 million construction workers who are going to have to find a new kind of job,” said Ed Leamer, who heads an economic forecasting unit at UCLA. “We have two and a half million workers in manufacturing, and about a half million in retail that can’t find work. That’s five million people. Quite a few of them are not going to be re-employed.”

Leamer’s estimates match other projections. Given that the economy must generate in the range of 150,000 new jobs a month just to keep up with the growth of the nation’s population, and must generate in the range of 250,000 new jobs a month to bring down the unemployment rate, “normal” unemployment in the range of 6-7 percent isn’t expected anytime soon — not until 2013, according to an analysis from the Congressional Budget Office. According to Mark Zandi, chief economist at Moody’s Analytics, it will be 2014 or 2015 before employment recovers.

The nation’s businesses have been adding jobs — 71,000 in November and 103,000 in December — but at a slow rate, while cash-strapped state and local governments have been shedding jobs: 10,000 in December. The result is a jobless rate that remains high: 9.0 in January nationwide.

To add to the pain, while 15 million Americans found themselves out of a job, the stock market in which most of them had trusted their retirement lost half its value. The SP 500 Index, which is probably the best measure of corporate value, fell from 1540 in January of 2007 to 757 in March 2009, a drop a 51 percent. Although the market has regained most of its losses in the last year and a half, hiring has not yet picked up, as big corporations — including Exxon, Google and Apple — have been banking their excess assets. According to the Federal Reserve, these cash accounts totaled $1.8 trillion at the end of last year. Warren Buffett’s Berkshire Hathaway, the largest cash holder, has nearly $150 billion in reserves, waiting for the stormy markets to calm.

Stock market recovers, real estate does not

Meanwhile the “pop” of the bubble bursting in the stock market was almost drowned out by the roar of the collapsing real estate market.

In Southern California, an average home was worth $505,000 in June of 2007, but only $247,000 in April 2009. In Ventura County, prices remain relatively high — the average home cost $355,000 in the fall — but that’s still nearly 3 percent less than the cost of the same home a year ago, when the market was believed to have hit bottom. The volume remains exceedingly low — down more than 12 percent from the year prior — and the length of time to sell a house agonizingly long for sellers.  Robert Schiller, an expert in bubble economics at Yale, points out that it took six full years after the recession of l991 for the housing market to come back to life.  

Dr. Sung Won Sohn, an economist at Cal State, Channel Islands, adds that unemployment is high both among the young and the middle-aged, but at least young people have the freedom to move.

“No one is finding much work now, but young people are in a better position to find jobs in the future,” he said. “If a young person finds a job in another city, nothing stops him from moving there, but if you’re middle-aged, you probably won’t be able to sell your house.”

Ventura County has certain advantages

Despite this seemingly endless cavalcade of economic gloom, Bill Watkins, an economist who directs the Center for Economic Research and Forecasting at Cal Lutheran, sees Ventura County as having advantages over its neighbors.

 “Ventura County has the [Port Hueneme] naval base and the port, and those are big stabilizers,” he said. “That’s 15,000 or more jobs right there. Amgen is an important contributor to our economy; when Amgen pays a bonus to its employees, it shows up in the county income statistics. But we are heavily influenced by the job market in Los Angeles, where a lot of our people work, and when unemployment in L.A. is at 12.4 percent, we are going to feel it in Ventura.”

Watkins sees some signs of recovery in the job numbers, but not in the housing market.

“The fall-off in wealth [due to the slump in real estate values] means households are increasingly leveraged, and as long as high levels of debt remain, we don’t think the residential market can improve much,” he said. “In our most recent modeling, we’re finally showing some positive job growth, but real estate, construction and especially commercial real estate is in a bit of a mess right now.”

Sohn at Channel Islands agrees that the real estate market — and the entry-level jobs that go with it — is not bouncing back any time soon.

“Construction and manufacturing have in the past employed a lot of young people, some of them in somewhat menial positions,” he said. “Those jobs are gone. Even full-time workers are struggling to hold on to their jobs, and in that scenario, clearly teenagers and young people are the first to go.”

The Millenials: the abused generation?

The collapse of the housing market led to another unhappy surprise. The big loser among the economic classes in the Great Recession was not lower-income households, who usually rent, and so weren’t heavily impacted by the collapse in home values. Their household wealth decreased by only about 7 percent, according to a report this past May from the Pew Research Center.

Nor was it the rich, who usually have a diversity of investments. Their household wealth fell by about 12 percent.

The middle class, whose wealth depends mostly on the value of their homes, took the big hit, falling 23 percent.

At UCLA, Ed Leamer argues that the millennials — the generation born between 1980 and 2010 — are the ones getting the shaft in the Great Recession.

“I see a lot of kids who are really struggling, and it’s very troubling to me,” he said. “I think we’re looking at an abused generation. A lot of kids are graduating from college with a huge amount of debt. They’re going into a poorly functioning economy, and as a group, they’re taking on huge levels of public debt with pensions and other obligations. My first job was a dishwasher at a HowardJohnsons, and then I moved up to becoming a busboy. Right now, those kind of jobs are really hard to come by.”

This is reflected in statistics from Pew: Unemployment in teens is rampant. This summer, the unemployment rate among teenagers in California, age 16 and older, stood at 34 percent.

Leamer adds, “And while the kids are looking for work, their grandparents are working for Walmart!”

This illustrates another painful byproduct of the recession. Usually there is a rough balance between the number of jobs and the number of job seekers, about one prospective employee for every job. Economists agree that now, as many as five jobseekers are after every position, resulting in a fast-paced, brutal game of musical chairs. As job seekers become more desperate, they apply for jobs for which they are overqualified, or vastly overqualified, which only adds to the angst.  

After quitting a retail job this year in North Hollywood over an ethical violation by a boss, Craig Rosen found himself out of work for months, and resorted to applying even for a low-pay, low-hours position as a ticket taker for a small theater, just to better hear of a job in the field in which he hoped to work. He was rejected as overqualified.

By contrast, the demographic group least likely to have been harmed by the downturn is the elderly. Nearly a quarter of people younger than 65 have had difficulty paying the rent in this recession; but among those older than 65, it’s only 7 percent, according to a survey published this summer by the Pew Research Center.

The angry old, the upbeat young

The study points to a curious fact: Even though statistically the people who appear to be taking it in the shorts from the Great Recession are the young people, they remain relatively upbeat, in contrast to their gloomy elders.

“Blacks and Hispanics are more upbeat than whites,” writes Pew survey director Paul Taylor. “The young are more optimistic than the middle-aged and older Americans. And Democrats are more upbeat than Republicans, even though Democrats have lower incomes and less wealth and have suffered more recession-related job losses.”

When asked if America was the land of prosperity, only a slight majority of older Americans agreed, whereas fully 70 percent of young people not only agreed, but 85 percent were confident their financial situation would improve next year. Only 35 percent of older people thought their finances would improve. The unemployment for elderly people who continue to work remains low – 6.5 percent — while for workers younger than 24, it’s nearly 20 percent.

After looking more closely at the data, the researchers discovered that those who had suffered big losses in the stock market or in the value of their homes believed the recession would last longer. Those who had not suffered such losses expected the economy to improve within a couple of years.

So young people — less likely to own homes or stock investments — may be more optimistic simply because they lost less in the downturn.  

When will the economy recover?

Like pilgrims to a famous shrine, sufferers in the recession come to economists again and again with the same question: When will the economy get healthy?

All the economists surveyed by the Reporter agree that the economic outlook is brightening, but none expects full recovery soon.  

“Things are definitely improving,” said Watkins. “Indications are that California has passed through the worst of it, but the recovery will not be robust enough so that people feel good about the economy anytime soon.”

“I worry about the 5 million people in construction and manufacturing who have been pushed out of the job market,” said Leamer at UCLA. “These people need to find something new to do, and it’s not going to be easy — they’re not going to become investment bankers. I’m also concerned about the debt we’re piling on the younger generations.”

Sohn at Channel Islands agrees that the amount of public debt placed on the younger generation is a moral issue.

“I think the older generation has really done a significant disservice to their children and grandchildren,” he said. “The younger generation will eventually find jobs, but they will be working to pay off the $1.5 trillion in U.S. Treasury bonds owned by the Chinese for decades to come.”

At Moody’s Analytics, Mark Zandi thinks that the deal struck between the Obama administration and the Republican House to extend the Bush tax cuts will provide some stimulus to the economy, mostly from approximately $80 billion in unemployment benefits over the next year. He expects the unemployment rate to fall to around 8.6 percent.

And at the work services office in Oxnard, Mary Navarro-Aldana is also optimistic.

“We’re getting more calls from employers now,” she said. “Give the economy six months — it’s going to get better.”

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