Despite A Recession, The U.S. Economy Isn’t As Bad As You Think

by Jacques Sprenger on 2008-10-2225

A recession may be looming, but overall, the U.S. economy isn’t in as bad a shape as we may think. Or is it?

SVB: The stock market goes up and down 900 points at a time and the wild behavior is making many of us sick in the gut. But how about we step outside of our blinders a little and look at the *really* big picture? I don’t know…maybe it’ll help a little to see how we stand in the big scheme of things. I’m sure that many of the more jaded may disagree, but I found this post by Jacques Sprenger (one of our contributing writers) to be rather refreshing, as one written to counteract these schools of thought. The premise of our article today? Where we stand is all relative.

Whoever says that the American economy has tanked should take another look. I believe this country is one of the most productive nations in the world, up there with the Germans and the Japanese who are no slouches when it comes to industrial output and innovation.

The Great Depression You Say? This Is Not 1929!

The rate of unemployment as of August 31, 2008 is 6.1%, an admittedly higher rate than 2 years ago, but still very low when compared to European countries. We reached that rate in August of 2003 and nobody screamed “Depression” then. In 2007, the median income per household reached over $50,000 (cost of living aside), the highest in history. While more than 37 million people are living under the poverty line, our country has some favorable programs in place that help address this condition; these programs provide housing, Medicaid, and food stamps. The situation elsewhere may not be as favorable.

U.S. economy, recession

Businesses Must Grow. Let’s Get Rid Of The Weeds.

“To help retain their current sources of business, entrepreneurs will place a heightened focus on better servicing customers to set their business apart from competitors”, according to the American Express Small Business Monitor.

This is good news, very good news for us consumers; does it mean an end to the boring “hold the line while a customer representative becomes available”? Maybe not, but the crisis brings with it a silver lining. It weeds out non-competitive companies and rewards the efficient ones. The article also mentions that three quarters of business owners plan on growing their business; and that’s in the middle of an economic crisis. Growing businesses also means more jobs will become available.

Is The U.S. Economy Growing?

The economy as a whole grew almost 3% in the second quarter of 2008, a remarkable number considering all the turmoil. Granted, the second half of the year will not show such rosy numbers. But remember that our industries are exporting more than ever, thanks to the dollar’s lower value. Most companies are experiencing lower profits, say the economists. Think about it for a moment and view it as the glass being half full — they’ve got profits! This means that they’re in reasonable shape, since they are not losing money.

How Low Will We Go?

When the stock market drops precipitously, as it has recently, millions of investors lose (paper) money. The rich ones won’t really suffer, but the average 401k will (temporarily), as well as the portion of pension plans invested in the market. But as fast as the stock market drops, it can also shoot back up, albeit less hurriedly. Can you believe that the Dow Jones used to be under 10,000 not long ago, 8,300 to be exact in February 1998? Well, though we’re now hovering close to that number, who wants to wager that the market will recoup at least some of its losses before the end of the year, as soon as our lazy politicians get to work in Washington?

Hey, We Are Still Number 1

We are still the largest producers of food in the world. The prices of homes continue to drop, and that’s actually good, in my opinion. It means that the ridiculous bubble that prevented millions from buying homes is now over. Export of goods and services increased a phenomenal 12.3%* in the second quarter. Imports decreased more than 7%* for the same period, which is good for our national deficit. The GNP, a measure of what is actually produced in our country excluding exports, rose 2.1%* in the second quarter. Is that a sign of a fundamentally flawed economy? *Data from the Bureau of Economic Analysis (a government institution).

Yes, we have economic and financial problems, but I strongly believe that the extraordinary might and resilience of this country will, once again, prevail.

Copyright © 2008 The Digerati Life. All Rights Reserved.

{ 21 comments… read them below or add one }

Drew October 22, 2008 at 8:27 am

I think this is a GREAT article. The reason why we are having such a “downturn” is simple. 1) Stock analyst over react to news. 2) Stock analysts opinions are over rated. 3) The media needs to sell papers.

What this means is simple. For #1, If one company loses money – it does not mean that every company in the stock market is going to lose money. However this is how analysts react. It is not always the case. Circuit City might be loosing money, but Best Buy might have lowered costs and maximized margins, and will make a boat load. You never know.

#2, Analyst bend over and pick info out of tuckus. They say, company XYZ is going to make 15% increase this quarter or they suck. Well they make 14% because they are spending more money on R&D or what not, then guess what, they still grew 14% but that was not what an analyst said so they suck and the company stock drops 10%. This is stupid, they turned a profit, and made 14% more than they made last year.

#3, The media blows everything out of proportion. When people over sensationalize, they have to take it to an even greater level just to get everyone to listen to them, which is their job. The more shocking the better to grab eyeballs. That is the nature of their beast. So they blow stuff up. One bad day on wall street is talk of recession. One bad couple months (see #1 and #2) and then we are talking depression.

I think that we are going back to times with prices were saner on most items (houses, cars, etc) and now we will eventually get back to slow, steady growth and things will be easier.

Donny Gamble October 22, 2008 at 8:54 am

I learned that in order to be a great investor, you have to look at everything in a positive manner. If my stock goes down, I can buy more shares at cheaper price; if my 401k loses money, I will increase my contribution level because I’m getting more shares at a lower price and will benefit in the long term. This is my philosophy and it continues to work for me until this day.

jim October 22, 2008 at 11:19 am

Drew: Part of the concern, and why financials were clobbered, is that many firms are interrelated. One bank having problems has ripple effects, but I think that contributes to the overall insanity and panic when you start talking about other companies.

I totally agree with #2 and #3 though, spot on.

Adam A. October 22, 2008 at 11:20 am

That’s BAD. That means we haven’t seen the worst yet!

YoungMoneyTalks October 22, 2008 at 12:56 pm

Thank you, thank you, thank you for this post! I’m so sick of the gloom and doom that’s helping to produce the self-fulfilling prophecy of the economy. Let’s hope more people start thinking like this!

Sam Chapman October 22, 2008 at 1:03 pm

Thank you for a well thought out post. Most of what you read these days is the sensationalistic press making everything look like an absolute disaster. We’ve made it through worse things and we will make it through this.

JVG Consult October 23, 2008 at 4:14 am

Yes, but the 1929 depression is a warning example. There are some things that were learned and some that have been forgotten and may have to be re-learned. The human tendency!

Myrtle Beach RE October 23, 2008 at 9:28 am

Self-fulfilling prophecy is correct. It would have been bad either way, but the ‘sky is falling’ crew just makes things much worse.

Steve "The Debt Settlement Man" B October 23, 2008 at 11:15 am

I love the optimism, I just spent 3 months in Africa and everyone is trying to knock our economy and say how were on our way down. I say hell no, this is just a speed bump in the great American economy,we will rebound and we will rebound strongly

Aya @ Thrive October 23, 2008 at 1:00 pm

It seems like we tend to look at things at an extreme and that’s why our vision is skewed. We’re either focusing only on the short term/temporary effects, i.e. the dow falls drastically = depression, preventing us to realize that we’re still better off than many. Or we try to paint too big of a picture causing us to determine the downfall of the country based only on a few weeks of this month, when the economy might not have failed out yet completely. Plus, I think most of us juxtapose our own financial states with others and think we’re in a bad place altogether when everyone’s financial status is unique to each person.

Shadox October 23, 2008 at 8:59 pm

Maybe I am saying this because I have view the world from the perspective of an executive trying to raise B Series funding for a tech company in Silicon Valley, but let me tell you something: at least my part of the country is in for some serious pain in the coming years.

Unemployment at 6.1%? Don’t believe government statistics for a second. They are notorious for under counting and misrepresenting reality. For example: folks who are under employed (e.g. take a part time consulting gig after losing their job) are considered employed. Folks who have given up on searching for employment because they don’t see any prospects – don’t count as unemployed; there are many other such categories.

I am not saying that the world is falling apart. Not by a long shot. In fact, I am still investing in the stock market and increasing my positions, however, the economic situation is bad. It’s getting worse. And it will get really painful before it gets better.

AmeriGlide October 24, 2008 at 6:36 am

I live in NC and luckily, we have weathered the storm pretty well. We do have a higher than normal unemployment rate, but it is not as bad as other places. The housing market has been pretty solid too, with home values not decreasing terribly either.

@Shadox: Correct me if I am wrong, but it seems like you disagree with the notion that people who have stopped trying to find work being considered ‘unemployed.’

I would agree with this statement, because there is no reason someone who is physically able to work, should stop trying to find work. You can almost always get a job somewhere, even if it is only something like Burger King, until you find something better. Someone who has given up trying to find work, should not be counted as unemployed.

Niccolo Svengali October 24, 2008 at 10:08 am

We’ll know more in 9 months. What’s happening now is the contraction of the sub-prime balloon, and broker panic.

Jim October 24, 2008 at 2:33 pm

Thanks. Very good point. People are in a panic mode right now and the media is only worsening the situation in general with all the doom and gloom.

Average unemployment levels and positive GDP growth is certainly not even close to depression level situation. We’re not technically in a recession either. It could be what we’re seeing now will lead to a contraction but that remains to be seen.


Jacques Sprenger October 24, 2008 at 4:03 pm

Thank you very much for your kind comments, Sam and YoungMoney, Drew and others. Indeed we have forgotten what this country is really made of, i.e. the pioneer spirit that nowadays is reflected in fantastic inventions that seem to sprout almost every day.
What other country could withstand 2 wars during a recession, and the results of Bush’s 8 years of mismanagement. But that’s the price we pay as a democracy: we don’t elect to smartest people.

Paul October 25, 2008 at 1:29 am

Do you remember the Great Depression from learning American History? In 1932, the Great Depression was sending the world economy into a deep recession, and in the United States, a popular candidate was running for President on the platform that he and government were going to come in and fix things with his “New Deal.” Franklin Delano Roosevelt made good on those promises, and expanded governments’ role in the economy on an unprecedented scale. It worked, in the short term, but long-term effects were far reaching and damaging. There must always be a control in all the regulation to avoid any kind of inevitable problem.

Paul Rubin outlines in this Wall Street Journal article, that whilst the economy has not reached the state of 1932, many parallels exist. The stock market is hovering near the bottom, credit is virtually nonexistent, and a popular Democratic challenger is running on a platform of government-spearheaded change in the economic system.

Barack Obama, if he wins the presidency will also have a 60 seat Democratic majority in the Senate, which would be safe from filibuster and put the US closer than it ever has been to a purely liberal government. Free market economists are deeply concerned with his policy of “hands on” involvement, as they believe it would not correct the economy’s problems in the long term. They would probably not tell you that we’re as bad off as we were in 1932, but they would probably say that we’re about to get the same thing — a “New, New Deal.”

Emily October 29, 2008 at 10:33 am

You made a great point about getting rid of the weeds. We have definitely seen a growth in terrible customer service. Perhaps this will get better service back. But it will only be a matter of time before it will get sour again.

Wellington November 9, 2008 at 4:12 pm

You have a great outlook on the current economic climate. As long as no one panics and does anything rash, we will eventually rebound, and climb higher than ever. We always do.

Jim January 10, 2009 at 6:07 pm

I agree with the “media hype” angle. The worst part about all of this is that it’s intentional. The most successful people in the world know the power of words and the power of positive thinking. Why do they put out such negative statements so often? It’s exactly as people say…self fulfilling prophecy as in — they know you get in life what you believe. If these “rich” people actually let themselves lower their thought to this poverty type thinking…they too would be poor. They like you being poor and know how to keep you there — through your thinking. The easiest way to do that is to repeatedly state fiction as fact until over time it is believed. It’s the simplest form of brainwashing…but it is very effective. “GLOBAL ECONOMIC RECESSION!” Gee, last time I looked I lived on this globe…and I know no-one around me who is suffering in any way. So, please leave me out of your broad-based propaganda. They love the Buzz words don’t they. It’s all a joke…and just like the previous doom and gloomers…it will pass and they’ll find something else to paralyze you with their fear mongering. Think higher and don’t let the “rich” be the only ones who know the power of your thoughts impacts and creates your future.

Why do they do it? To get your life savings. They know when to pull out of the stock market and the housing market and leave you holding valueless commodities. They they buy them up from you cheap because you can’t afford to hold onto them any longer. It’s all very simple when you know the mentality and techniques that are used on a daily basis to brainwash you….unbeknownst to you.

Believe it or not…it’s the truth you need to know to defend yourself agains this type of disgusting attack on your very being.

Silicon Valley Blogger February 12, 2009 at 9:41 pm

I still want to focus on cash flow. These days, I’ve been really giving my online businesses pretty high priority. In a poor economic climate, I feel that I need to work harder to make up for any losses I see in income. During a slump, we’re all just a tad bit more paranoid than we usually are, and by collectively focusing more on our jobs and businesses, we may nudge the economy forward. The economy may eventually sit up and take notice of this increased productivity in our labor markets.

carolina forest February 19, 2009 at 10:15 pm

the economy seems to be picking back up a little

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