Are we in a Depression?...Not Quite

I was reading a weekly publication today and I saw the results of a poll asking if respondents considered our present economy a “depression”. Surprisingly, nearly two-thirds of New Yorkers feel that we are either definitely in a depression or may be in a depression very soon. And it is no wonder that people feel this way as many of the politicians we have listened to lately (from the very top on down) have been using language which is nothing short of fearmongering. Phrases such as, “an economic abyss from which we may never recover”, “catastrophic economic conditions”,  “a coming economic apocalypse”, “a complete economic meltdown” and “without this stimulus package, another depression will befall us”.  Of course the game of politics operates this way and swaying congressional votes is assisted with such grand statements.What these politicians seem not to realize is that this rhetoric is, in fact,  harmful to consumer confidence and consumer spending.  People are starting to believe these proclamations as evidenced by the referenced poll. These statements may make for good political theatre but they do not accurately reflect the current state of our economy.Please do not misinterpret my intentions here.  I know that times are difficult, the ecomomy is hurting and to those who have lost jobs or are  suffering financial hardship, they really dont care how the economy is characterized, they only care about paying this month’s bills. My heart goes out to them and I am not making light of their circumstances. The fact is, however, that today the state of  our economy is much more similar to the recessionary period of the early 1980′s than it is to the Great Depression in the 1930′s. Let’s compare these points in time.Because there is not much real estate information available from the Depression period(other than knowing that the construction boom of the roaring 20′s came to a screetching halt), let’s take a look at employment, which is the metric that has the most profound effect on real estate fundamentals. Extrapolations can be made from there. In 2008, the US lost 3.4 million jobs which represents 2.2% of the labor force. From November of 1981 to October of 1982, 2.4 million jobs were lost but because the labor force was smaller, this reduction also equalled 2.2%. During the Great Depression, job losses were of a completely different magnitude. In 1930, the labor force shed 4.8%, in 1931 6.5% and in 1932 another 7.1%!  The overall unemployment rate today is 7.6%. At the peak in 1982 the rate reached 10.8% and in 1932 the rate was 25.2%. (Using the same formula to calculate the rate that was used in the prior periods, today’s rate would be 13.9%. )If we look at GDP, in 2008 total GDP rose notwithstanding an abysmal 4th quarter which showed a 3.8% reduction in output (look for this figure to be revised downward). The Congressional Budget Office projects a decline of 2% for 2009 while several economists are projecting reductions of 3% to 4%. In 1982 GDP contracted by 1.9%. Compare these figures to 1930, 1931 and 1932 when the contractions in output were successively 9%, 8% and 13%.During the Depression, 10,000 banks failed. Thus far in this cycle, approximately 35 have failed with another 200 on the FDIC watch list. In 2008, the Dow Jones lost 36% of its value while in the early 1930′s the crash reduced equity values by 90%. Auto production declined by about 25% last year while in 1932 the reduction was 90%. The Depression lasted 11 years while this recession has been with us for only 14 months thus far.So yes, things are tough today, very tough. Unemployment will continue to rise and more pain will be experienced. But a comparison of the two eras leads us to the conclusion that we are not in a depression……yet!