YOU DECIDE: Is the economic recovery 'normal'?

Media Contact: Dr. Mike Walden, 919.515.4671 or

By Dr. Mike Walden
North Carolina Cooperative Extension

Most economists point to mid 2009 as the end of the recession that began in late 2007. This is because since that date, the majority of — but certainly not all — economic measures have been improving. Aggregate income is up, factory output is higher, business revenues and profits have surged, consumer spending has grown, and even jobs have increased. Remember, the end of a recession doesn’t mean everything is fine; it just means the economy in general is improving.

So one question to ask is whether the economy is on track. Obviously, the recent recession we’ve endured is not the first time the economy has faltered. In fact, there have been 12 recessions since World War II.

But there’s no question the recession of 2007-09 was one for the record books. In most categories it was only exceeded in severity by the contraction of the early 1930s, the so-called Great Depression. This is why many economists are already dubbing the 2007-09 dip the Great Recession.

Now that we’re almost two years into the recovery from the Great Recession, is the economy following the pattern of other post-war economic turnarounds? As you might expect, the answer is “yes” for some aspects and “no” for others.

It’s “yes” in terms of how the recession affected certain industries and, therefore, how those industries are performing in the recovery. Typically, recessions hit hardest industries making products buyers can postpone purchasing. This should make sense. If a business has seen a decline in its revenues, it will save costs by not upgrading its computer system or buying a new copier. Existing equipment will be used longer.

Likewise, households suffering from a loss of income won’t purchase a new vehicle, won’t buy a bigger dining table and will put on hold plans for an addition to their home or a new home.

Therefore, we usually see the manufacturing and construction sectors get crushed during recessions. Indeed, this happened this time, with both sectors suffering plunges in both output and employment.

In contrast, businesses selling services or products that buyers need on a continuing basis or for which buyers have a difficult time making reductions, generally don’t decline as much during recessions. The best example is health care. Most people who are injured or sick want to receive treatment. Health care also is helped by the fact that a high percentage of payments are made by third parties; that is, government and insurance.

In fact, health care spending continued to rise during the recession, and even health care jobs rose in North Carolina from 2007 to 2010. Military spending and the employment generated by that spending also gained.

The flip side of these differing impacts occurs in the economic recovery. Manufacturing and construction rebound strongly and lead other sectors, while services like health care are more stable.

We have seen a strong rebound in manufacturing — nationally and in North Carolina –in both output and jobs. In particular, technology production is on a roll. But construction hasn’t been playing according to the traditional script. Residential construction and sales are still slow and much below pre-recessionary levels, and construction employment is still dropping.

The reason has to do with the unique feature of the recent recession. It actually started in residential housing, with the pull back in sales, construction and prices following the unprecedented boom of the early 2000s period. Unfortunately, the pull back doesn’t appear to be over. In many markets, prices are still falling, in large part due to the large inventory of homes for sale.

So a new chapter is being written for this economic recovery with a common theme: unevenness. Some parts of the economy are improving and moving ahead; durable goods manufacturing, transportation, information and health care are examples. Others — like construction, real estate and in North Carolina, nondurable manufacturing — are still stuck and slipping.

It would be nice if we could get all parts of the economy on the same path of improvement. But maybe this is a dream. You decide.

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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The College of Agriculture and Life Sciences communications unit provides his You Decide column every two weeks. Previous columns are available at

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