MPR's Chris Farrell: Recession over, look for jobless recovery
Most economists agree the recession ended in July, but don't count on a quick recovery.
"We sort of teetered on the precipice of a Great Depression," Chris Farrell, Minnesota Public Radio chief economics correspondent, said Thursday night in Bemidji.
"Thanks to extraordinary efforts by the Federal Reserve, a bank bailout, an unprecedented federal stimulus, and a number of other actions and not just here but around the world, we averted a Great Depression," he said.
But Farrell, who spoke to several hundred local MPR members and supporters at the Hampton Inn & Suites, said recovery won't be quick and it will be jobless, adding that the true unemployment rate is 17 percent.
"We've got 15.1 million people who are unemployed but there's a more important number," he said. "Seventeen percent includes the officially unemployed, the 9.8 percent, but it also includes the people who want to work 40 hours a week but can only get 22 hours a week or 30 hours a week."
There are also those who work from project to project, with unemployed periods in between. "They're attached to the workforce but marginally," Farrell said. "It's going to take a long period of time to work down that unemployment rate, to have a really strong, robust economy in terms of jobs."
The severity of the recession and how it happened, plus how the world dealt with it, leaves real implications on how to manage money, Farrell said.
The past decade has seen the slowest rate of economic growth in the post World War II period, he said, plus for the first time, household incomes declined.
Real household income grew 4.5 percent during the growth 1970s, Farrell said, and by 6.5 percent in the 1980s. It grew by 8.3 percent in the 1990s. "Borrowing is an act of faith, that you're going to be able to borrow this money and pay it back in the future. In previous expansions, that household income grew."
But in the 2000s, real household income declined 0.6 percent. At the same time there was increased earnings pressure as people bought bigger homes and more "stuff," he said.
The United States is a wealthy economy, but by different means, he said. In 1968, only 38 percent of families were two-income couples. Now it's more than 70 percent.
"In the environment that we're in, we're going to have to do what we've said we've always wanted to do, which is live within our means," Farrell said.
With high unemployment and a nearly exhausted two-income household economy, the economy is further harmed by a new position of corporations to cut wages rather than just cut positions.
There were tough times in the 1970s and 1980s, "and massive layoffs became key," he said. "Even in the good times, companies would go and lay off whole sections. ... What happened during this downturn is companies cut pay, put people on furlough or had pay freezes. This was taboo -- you would lay off people but you would not cut pay."
Farrell theorizes that in the future, "when the good times roll and a company gets into trouble, it may not have as big of layoffs as before but it will cut pay, it will install furloughs."
A jobless recovery means business will be slow to hire back full-time staff, he said.
"When it comes to the job market, it's a fairly bleak forecast," he said. "The average work week is way down. Just to get people back up to 40 hours a week ... is the equivalent of hiring 3 million people."
Many lessons are to be learned, said Farrell, who headlines MPR's Marketplace Money.
"One of the themes that comes out of this downturn is that we're all much more aware of our own economic insecurity," he said. "We're going to save more, and we're going to have to save more. We all learned during a Great Recession how vulnerable we are to a downturn."
People over the next three to four years won't feel comfortable doing into the boss' office and demanding a 10 percent raise or else walk across the street, he said. "They'll say have a nice walk."
Saving more is not a bad thing, Farrell said. "It's tough right now, but in terms of saving we're probably saving mostly now for defensive reasons, for security reasons, to create a greater household safety net. And we're borrowing less and trying to pay off our debt.
"But over time what this will become is our opportunity fund; it will become the way we fund career changes or where we take advantage of an investment opportunity that's out there," he added.
"We are living through a period of time of fundamental change in the way that we manage our money." Farrell said. "We're going to save more and we're going to borrow less."
Americans have learned how vulnerable they are, he said, and the job market won't rebound fast enough to allow people to return to borrow and spend patterns of old.
"The reason this time is different is that we've gone through a serious experience and this experience is teaching us we borrowed too much, we need to save more. And, by the way, the banks are not going to be as willing to loan to us as they were before. They're going to be more conservative."
The United States is moving toward a more conservative society, a more conservative financial posture, Farrell said.
The wild card, he said, is innovation.