Today’s Economic Situation: The Great Recession, The Recovery, Where We (May Be) Going? Principles...

Today’s Economic Situation:Today’s Economic Situation:The Great Recession, The The Great Recession, The

Recovery, Where We (May Be) Recovery, Where We (May Be) Going?Going?

Principles of MacroeconomicsPrinciples of Macroeconomics7/20/127/20/12

Today’s AgendaToday’s Agenda

Today’s AgendaToday’s Agenda

Where We Are TodayWhere We Are Today Historical PerspectiveHistorical Perspective Reasonable Expectations for the Reasonable Expectations for the

FutureFuture SummarySummary

HeadlinesHeadlines

Historical PerspectiveHistorical Perspective

Recession Year

Peak Unemployment

Trough of GDP change

Duration (months)

2001 6.4 -0.6% 8

1990 7.1 -1.2% 8

1981 10.8 -3.4% 16

1980 7.8 -2.4% 6

1973 9.0 -4.3% 16

Average 7.0 -2.3% 10.8

The The GreatGreat Recession Recession

Worst since the Great Depression.Worst since the Great Depression. Duration: 18 months (Dec 2007-Duration: 18 months (Dec 2007-

June 2009)June 2009) 7 months longer than average7 months longer than average

Peak Unemployment: 10.2%Peak Unemployment: 10.2% 3.2% worse than average3.2% worse than average

Trough GDP change: -4.1%Trough GDP change: -4.1% 1.8% worse than average1.8% worse than average

NY Times Headline

9

Great Recession vs. Great Depression

Great Depression

(1929 – 1933)

Great Recession(2007 –2009)

GDP Growth (%) -29% -4.2%Unemployment (%) 25% 10.2%

Inflation (%) -25% +2%

DJIA Change (%) -89% -54%

Bank Failures (#) 9,096(50% of total)

137(1% of total)

The Recession is over?

The recession is over? Officially ended in June 2009. Means the worst (trough) is over,

does not mean the pain is over! We had two consecutive quarters of

GDP growth. Still have unemployment of 8.3%,

14 million unemployed workers. Lots of major economic/social

issues

Total Private Total Private Employment – U.S.Employment – U.S.

Total Private Total Private Employment - OhioEmployment - Ohio

Employment - % ChangeEmployment - % Change

Unemployment Unemployment Ohio/NationalOhio/National

Unemployment Unemployment Youngstown/U.S.Youngstown/U.S.

Unemployment by level Unemployment by level of educationof education

How large is the output How large is the output gap?gap?

Jobless Recovery?Jobless Recovery?

ManufacturingManufacturing

ExportsExports

Corporate ProfitsCorporate Profits

Stock MarketStock Market

Encouraging Sign for the Encouraging Sign for the FutureFuture

What has not rebounded:What has not rebounded:Housing PricesHousing Prices

What has not rebounded:What has not rebounded:Construction SpendingConstruction Spending

What has not rebounded:What has not rebounded:Firm borrowingFirm borrowing

Household DebtHousehold Debt

Real WagesReal Wages

Productivity

Productivity Trend1947-1973

11

12

13

14

15

Me

an

Ye

ars

of E

duca

tion

100

150

200

250

Tota

l F

acto

r P

rod

uctivity

Year

Total Factor Productivity

Productivity


11

12

13

14

15

Me

an

Ye

ars

of E

duca

tion

100

150

200

250

Tota

l F

acto

r P

rod

uctivity

Year

Total Factor Productivity

TFP–Measure of output changes not caused by observable inputs (labor and capital). Tells us how economy changes as a result of technology

Productivity

Median Family Income


300

00

400

00

500

00

600

00

700

00

Me

dia

n F

am

ily In

com

e

100

150

200

250

Tota

l F

acto

r P

rod

uctivity

Year

Total Factor Productivityand


Productivity



300

00

400

00

500

00

600

00

700

00

Me

dia

n F

am

ily In

com

e

100

150

200

250

Tota

l F

acto

r P

rod

uctivity

Year

Total Factor Productivityand


Source: Bureau of Economic Analysis Federal Reserve Board, FOMC Minutes ,

Projections for the Projections for the future: Employmentfuture: Employment

Inflation ProjectionsInflation Projections

Good News for You!Good News for You!

SummarySummary Recovery is not as strong as we would like, but many Recovery is not as strong as we would like, but many

encouraging signs. encouraging signs. Leading indicators remain strong. Manufacturing, Exports, Leading indicators remain strong. Manufacturing, Exports,

and Investments have all grown substantially. Consumer and Investments have all grown substantially. Consumer debt has declined.debt has declined.

Inflation is not an issue.Inflation is not an issue. Projections for solid GDP Projections for solid GDP and and employment growth.employment growth.

Real GDP growth between 3-4%/yr., unemployment declines Real GDP growth between 3-4%/yr., unemployment declines between 1.5-2%/yr.between 1.5-2%/yr.

Recoveries take time (especially after a financial crisis).Recoveries take time (especially after a financial crisis). This recovery is stronger than previous (2003) recovery This recovery is stronger than previous (2003) recovery

If history is a guide, the growth during the recovery If history is a guide, the growth during the recovery will be greater than the decline during the Recession.will be greater than the decline during the Recession.

LEST WE FORGET THE LEST WE FORGET THE TREND!TREND!

U.S. Per Capita Income past U.S. Per Capita Income past 100 years100 years

World GDPPer Capita

100

1000

2000

4000

6000W

orld

GD

P P

er

Cap

ita

-100

0000

-100

00

-100

0 150

010

0015

0017

5018

0018

5019

0019

5020

00

YearNote: GDP per capita shown on ratio scale. Time axis is not to scale.Source: World GDP Per Capita from Bradford DeLong (1998).

World GDP Per Capita is Increasing

World GDPPer Capita

100

1000

2000

4000

6000W

orld

GD

P P

er

Cap

ita

-100

0000

-100

00

-100

0 150

010

0015

0017

5018

0018

5019

0019

5020

00

YearNote: GDP per capita shown on ratio scale. Time axis is not to scale.Source: World GDP Per Capita from Bradford DeLong (1998).

World GDP Per Capita is Increasing

Today’s Economic Situation: The Great Recession, The Recovery, Where We (May Be) Going? Principles...

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