Our 2020 Economic Recovery

Al Jacobs

During the first several months of this year, the United States suffered a most egregious calamity. Due to a variety of factors, mostly fueled by hysteria and overreaction by governmental agencies, a substantial portion of the citizens of this country experienced a shift from financial adequacy to abject insolvency. In less than 90 days it appears the nation will have witnessed no fewer than 30 million employees forced from their jobs and compelled to apply for unemployment benefits.

It’s generally conceded the unemployment rate – the percentage of unemployed workers in the labor force – is the key indicator of the health of the country’s economy. It typically rises during recessions and falls during periods of economic prosperity. It also declines in wartime, as it did though all five major U.S. wars, particularly World War II, while rising during the periods that follow. And understandably, when businesses lay off large numbers of workers, there are fewer people with buying power to patronize these businesses. It can grow into a vicious downward cycle which, under extreme circumstances, becomes devastating.

It’s not always easy to predict when massive unemployment is due to occur. At the completion of Calvin Coolidge’s six-year presidency in March 1929, a period referred to as the “Age of Prosperity,” America enjoyed unique benefits, with its goods in demand and manufacturing booming. This was partly due to tariffs on European goods making foreign imports less profitable. Vibrant industries such as automobiles, oil and steel, and road construction flourished. With apparent economic well-being and an ever-rising stock market, perpetual good times seemed assured.

Despite favorable signs, hidden problems lurked. Though living standards improved for many workers, over two-thirds of the people subsisted in deplorable conditions. Most workers’ wages didn’t approach the improved standards of the economy as a whole, nor were labor unions effective in negotiating with powerful corporations – nor was the economy poised for a severe jolt, should it come. And in many respects, the American economy found itself in the same condition in 2019. Again, with the economy not poised for a jolt – should it come … and indeed it came.

In January 2020 a virus from China appeared. Although one arrives each year, with little reason for alarm, it became an instant political issue. Suddenly the nation seemed locked in a struggle, whereby prominent political figures visualized the world as ending and began terminating all enterprise. By mid-March, citizens everywhere were crazed into believing untold numbers of fatalities would soon occur. Now, by May, unemployment in the United States exceeds the highest percentage ever attained during the Great Depression of the 1930s. Our economy is in virtual free fall.

Perhaps a few numbers will put matters into perspective. When, in October of 1929, the stock market plunged, with average unemployment at 3.2%. By December of 1931 it had increased to 15.9%. In 1933, its worst year, it rose to 24.9%. Even seven years later, despite massive efforts, it hovered at 14.6%. It’s true, of course, certain areas rose higher than the averages … I’m told that in some specifically depressed locations it reached 35%. You’re now entitled to know to what level it rose in the mere two months since our officials, in March of this year, declared war on prosperity.

Let’s view our rate now at the start of May. Though the national unemployment rate is as yet unspecified, all Southern California areas are on record. With Los Angeles-Orange County, having lost 4.53 million employees, it stands at 31.7%. San Diego, with 406,990 jobs lost, is 29.8%. The Inland Empire of San Bernardino and Riverside Counties possess 431,390 fewer workers and a 31.9% rate.

And at the very precipice of local joblessness is the Imperial County community of El Centro, with a rate of 40.4%. I’m not certain if that rate could have been matched at any time during the Great Depression … but we’ve managed to swing it in just a couple of months.

As we’ve now discussed the past and present, it’s time to get on to the future. When will America return to sanity so we can all get back to work and to a normal life? There are no shortages of predictions. If you’ll tune into economist Chris Thornberg, a founding partner with prestigious Beacon Economics, headquartered in the Century City area of Los Angeles, you’ll learn there’ll be a rapid “V”-shaped recovery.

He envisions this second quarter will decline in GDP by 7.5%, but the third and fourth quarters will increase by 6.2% and 5.0% respectively. He contends “we have zero reasons to assume the economy will continue to under perform when the mandates are lifted.” I confess I like what he says … though I harbor serious doubts.

We might pay attention to Mark Zandi, chief economist at Moody’s Analytics – a subsidiary of Moody’s Corporation, established in 2007 to focus on economic research regarding risk, performance and consulting. He believes recovery will regain its footing on a sustained basis in mid-2021. His reason: It hinges on availability of a coronavirus vaccine. He declares “I would characterize this period as going through quicksand until we get a vaccine.”

 Let me now add I can present several dozen more economists, each with a varied view, but I’ll do you a favor and pass on them all. The well-established adage is still valid: If we laid every economist end to end, we’d never reach a conclusion … and of course, why should we, for by definition an economist is merely someone who philosophizes about other peoples’ money.

To get a glimpse of when customary human interaction, as we’ve come to cherish it, will return to normal, it may be helpful to see how and when it returned after prior periods of economic distress. Although our nation experienced numerous depressions during these past 2½-centuries, we’ll only give consideration to several during the most recent hundred years.

A most suitable time to start might be following the Great Depression of the 1930s, with its kickoff regarded by many to be the Stock Market Crash in October 1929. As the most horrendous economic dilemma of the 20th Century, it dragged on, more or less, until we entered World War II on December 7, 1941. Upon the war’s 1945 conclusion, with the U.S. the world’s only remaining major unscathed nation, hard times became only a memory. We may thank Benito Mussolini, Adolf Schicklgruber and Hideki Tojo for ending our depression. Without them, it might have taken a decade or more.

The recession of 1981-82, triggered by tight monetary policy and aggravated by the 1979 Iranian Revolution and following energy crisis, lasted a full year and saw the unemployment rate rise by 10.8%. By December 1983 – a full year following the official end of the recession – the unemployment rate had only fallen by 2.5% and the auto industry posted losses of $187 million. It’s fair to say an adequate recovery of a somewhat modest recession took no less than 18 months.

The Great Recession, spanning the period Dec. 2007 through June 2009, experienced an increased unemployment rate of 10% and resulted from a subprime mortgage crisis and a collapse of many financial institutions. Without Federal assistance of $1.5 trillion in bailouts and stimulus packages, recovery would have taken many years. But even with the massive government aid, normalcy came slowly. I recall as late as 2014 still bidding in auction properties at fractions of replacement cost. Not until five years following the official end of the recession did competitive values return.

So, the question I’ll pose: When does the economy recover so we can return to normal? I’m unhappy with my answer. The cataclysm currently in process is destroying far more than just the economy. Many people will never recover from the trauma being wreaked upon our society. I’m convinced – unhappily – we’ll never fully return to the sort of life we once enjoyed. Oppressive government is now permanently ensconced.

Al Jacobs, a professional investor for nearly a half-century, issues weekly financial articles in which he shares his financial knowledge and experience. Al can be contacted at al@abjacobs.com


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