More on the Recovery
"If the economy is getting better, then why are there 6 million less jobs in America today than there were before the recession started?" a blogger recently asked.
Because two years ago, there were 9 million fewer jobs than before the recession started. By no means is the economy recovered, but it is recovering.
Plenty of readers took issue with my claim that last week's jobs report confirms that things are moving in the right direction. Some said the numbers were flawed. Others said I wasn't looking at the right numbers. Others were miffed at the idea of recovery because their own circumstances are in contrast.
These weren't bad criticisms, but I'm sticking with my views. The economy is recovering. I feel that way not because of an ideological bent, but because it's what the facts show. I was bearish and skeptical when I thought the numbers backed it up. But the numbers have changed. And as I wrote last year: If you can't accept that when things change your opinions might need to change, too, you will be left anchored to a reality that no longer exists -- and likely making terrible predictions.
What facts do I think show the economy is recovering? Let's talk about three.
1. A decline in the unemployment rate -- all unemployment rates
The Bureau of Labor Statistics calculates several different unemployment rates. The most common, and the one most cited in the media, counts people who aren't working but would like to work and are actively looking for work. It's fallen from 9.4% a year ago to 8.3% in January.
But hold on -- that unemployment rate ignores those who have given up and stopped looking for work, and those working part time but want full-time work. Mitt Romney has been emphasizing this point lately: "If you take into account all the people who are struggling for work or who have just stopped looking, the real unemployment rate is over 15 percent," he said this week.
He's absolutely right. But that more complete measure of unemployment is falling, too. In fact, every way the BLS measures unemployment is in decline.
Source: Bureau of Labor Statistics.
The unemployment rate for groups hit especially hard by the recession is falling briskly. For men, unemployment has dropped from 11.2% in 2009 to 8.3% today. For African-Americans, it's declined from nearly 17% in 2010 to 13.6% today. For those ages 16-19, it's dropped from 29% 18 months ago to 24% today. Overall, the number of job openings has increased 39% since mid-2009.
Some readers disregard all of these numbers because they're published by a government entity they feel is biased and untrustworthy. But private payroll processor ADP also calculates a monthly job-creation report, and its numbers have actually been more bullish than the government figures. By ADP's calculation, private businesses have created more than 2 million jobs in the last years, which is 100,000 more than the BLS figures indicate.
Make no mistake: The employment situation is still awful. Millions of Americans have been out of work for a year or longer and will struggle to get reacquainted with the labor force even when employers want to hire -- a reality seen in the still-sky-high average duration of unemployment. But we have to distinguish "good" from "getting better." Things are by no means good. But they are, I think clearly, getting better.
2. Real income, GDP, industrial production... it's all moving up -- fast
The finance blog Calculated Risk produces some of the best economic-data graphs out there. Yesterday, it posted three good visuals outlining the recovery.
The first is the recovery in real personal income less transfer payments (government checks). While still below the pre-recession peak, income has made up more than half its loss:
The average worker is earning more money in inflation-adjusted terms than they were two years ago. In any world, that's good news.
Same for industrial production: We're still below the pre-recession peak but clearly moving in the right direction.
And real gross domestic product is now actually fully recovered (though it's not the best measure of how people are doing):
None of these figures show the economy is healed. In fact, the first two show clearly that we're still well below 2007 levels. But they all show that things are getting better -- and probably faster than most people assume.
3. The ills that caused the recession are being washed away
This recession was caused by an overdose in debt, particularly in the household and banking sector. And I'll say it until I'm hoarse: The main reason the economy is slow today is because households and banks are relieving themselves of that debt about as fast as they can. That's why our recovery has been slow, but it's what makes it real. We're attacking the root cause of our problems, not just the symptoms.
Since 2008, mortgage debt has declined by about $1 trillion. Credit card debt has dropped by $180 billion. Household debt payments as a percentage of income are now at the lowest level in 18 years. Even when government debt is taken into account, the economy's total debt-to-GDP ratio has been declining for four years, and faster than nearly any other developed nation on Earth.
As the late Andy Rooney put it: "People will generally accept facts as truth only if the facts agree with what they already believe." People view things differently -- that's what makes markets. But to me, the only way one can outright reject the idea that things are getting better is to be, at least partially, blinded by preset beliefs.
What do you think?
At the time this article was published Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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