Current Economic Conditions

and why this was not the ‘worst economic crisis’ since the Depression

byPaul Coomes, Ph.D.

Professor of EconomicsFebruary 17, 2011

An economist is

a dismal scientist

a tenured professor who works 20 hours a week

someone who couldn’t make a living in the business world

someone who is pretty good with numbers, but doesn’t have the personality to be an accountant

This last recession

is still underway

represents the worst economic crisis since the Great Depression ….

… and therefore calls for drastic measures by governments, or….

was a correction to a housing bubble, and triggered by a financial crisis in 2007

1110

810

11

16

6

16

8 8

18

0

2

4

6

8

10

12

14

16

18

20

peak - date recession began

Length of post-WWII Recessions, from National Bureau of Economic Research

(months from peak to trough)

The highest unemployment rate during the latest recession was 10.1%, in October 2009. This is

higher than during the Great Depression

higher than the 1974 and 1982 recession

less than 1982 recession

0

1

2

3

4

5

6

7

8

9

10

11

12

1968

1968

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2006

2007

2008

2008

2009

2010

Unemployment Ratepercent of labor force unsuccessfully seeking work (through 12/10)

Source:US Bureau of Labor Statistics, from Current Population Survey, monthly, seasonally adjusted

Peaked at 10.1% in

October 2009; now at 9.2%

reached 10.8% in 1982reached 9.0% in 1975

At the worst of the latest recession, 58.2% of adults were employed. This is

the lowest since the Great Depression

about the same as most recessions

higher than the 1974 recession

higher than the 1974 and 1982 recessions

50

52

54

56

58

60

62

64

66

1968

1968

1969

1970

1971

1972

1973

1973

1974

1975

1976

1977

1978

1978

1979

1980

1981

1982

1983

1983

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1987

1988

1988

1989

1990

1991

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1993

1994

1995

1996

1997

1998

1998

1999

2000

2001

2002

2003

2003

2004

2005

2006

2007

2008

2008

2009

2010

Employment to Population Ratio% of those aged 16+ working, male and female (through December 2010)

Source:US Bureau of Labor Statistics, from Current Population Survey, monthly, seasonally adjusted

dropped to 58.2%

dropped to 57% in 1982

dropped to 56% in 1975

peaked at 58.2% in 1973

peaked at 60.1% in 1979

peaked at 64.6% in 2000

30

35

40

45

50

55

60

65

70

75

80

85

1968

1968

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2007

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2008

2009

2010

Employment to Population Ratio% of those aged 16+ working (through December 2010)

Source:US Bureau of Labor Statistics, from Current Population Survey, monthly, seasonally adjusted.

Males

Females

Over past forty years, male rate has fallen by 14 percentage points, while 

female rate has risen by 14 percentage points

‘Mancession’

Big story: women more educated, taking office jobs, fewer children; over half of women working outside the home.

The stock market, as measured by the Dow Jones Industrial Average, is now

at its lowest level since the Great Depression

is about the same as it was in the 1970s and early 1980s

is 5 times higher than in the 1970s

is 10 times higher than in the 1970s

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1970

1970

1971

1972

1973

1974

1975

1975

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1980

1980

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2007

2008

2009

2010

2010

Dow Jones Industrial Averagemonthly closing, 1970 to 2010 (January)

in the 700 to 1,000 range for twelve years, 1970 to 1982

the great boom, 1985 to 2000

yesterday’s close = 12,288

trading in 10‐12,000 range for a decade

Since the 2007 financial crisis, home values in Louisville have on average

fallen by 25%

fallen by 2.5%

remain unchanged

risen by 10%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Annual Home Price Appreciation, Last Twelve Years by Quarter

Las Vegas

Source: Federal Housing Finance Agency; index of value of existing single-family homes in repeat sales or refinancings. Data through September 2010.

Naples

United States

Los Angeles

Housing bubbles in Florida, California, Nevada, Arizona………..

Bubble popped in 2006

hit bottom at end of 2008

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Annual Home Price Appreciation, Last Twelve Years by Quarter

Source: US Office of Housing Enterprise Oversight; index of value of existing single-family homes in repeat sales or refinancings. Data through September 2010.

United States

Louisville

Nashville

MemphisIndianapolis

CincinnatiDayton

Birmingham

Jacksonville

Richmond

Jacksonville

Among peers, only Jacksonville and Richmond had boom/bust.

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Annual Home Price Appreciation, Last Decade by Quarter

9 KY metros

Source: Federal Housing Finance Agency; index of value of existing single-family homes in repeat sales or refinancings. Data through September 2010.

Naples

No sign of any price bubbles or busts in our region….

Bowling Green, Cincinnati‐NKY, Clarksville‐Hopkinsville, Elizabethtown, Evansville‐Henderson, Huntington‐Ashland, 

Lexington, Louisville, Owensboro.

The average number of persons living in each house now is

1.6 persons per household

2.6 persons

3.6 persons

4.6 persons

2.00

2.25

2.50

2.75

3.00

3.25

3.50

3.75

persons per household

Average Household Size, United StatesWorld War II to present

Source: US Census Bureau, Current Population Survey

2.59

3.56

Appears to have reached a natural lower bound

Responsible for perhaps one‐third of housing boom 

For example, in the Louisville MSA, there was a decline in household size from 2.57 to 2.46 between 

1990 and 2000.Even with no population growth, that would result 

in 17,000 more households.

Many people are worried about the lack of ‘affordable housing’. The Louisville MSA has 350,000 owner‐occupied homes. Of those, how many are valued at less than $100,000? 

10,000 homes

40,000 homes

90,000 homes

150,000 homes

3,039

10,053

24,085

29,972

61,139

62,544

66,566

92,397

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000

$1,000,000 or more

$500,000  to $999,999

Less than $50,000

$300,000  to $499,999

$200,000  to $299,999

$50,000  to $99,999

$150,000  to $199,999

$100,000  to $149,999

Value of Owner‐occupied Housing Units, Louisville MSA, 2008

There were 350,000 units, with median value of $147,700.

Source: US Census Bureau, American Community Survey

The average annual compensation of public sector workers is

half that for private sector workers

about the same as private sector workers

20% more

40% more

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

1969

1970

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2009

Average annual compensation per job, private sector vs. government, Kentucky, last 40 years

Government $58,827

Private industry $36,050

Source:US Bureau of Economic Analysis

1.00

1.20

1.40

1.60

1.80

2.00

2.20

2.40

2.60

1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Ratio of average annual government employee compensation to private industry employees, Kentucky, last 30 years

Federal ‐military

Federal ‐ civilian

State government

Local government, including public K‐12

Number of 

Jobs

Average 

Annual 

Compensation 

per Job

Private industry 1,880,119 $36,050

Government, all 371,273 $58,827

Federal ‐ civilian 40,064 $87,899

Federal ‐ military 54,773 $91,975

State government, including public universities 96,914 $48,932

Local government, including public K‐12 179,522 $47,568

Source: US Bureau of Economic Analysis

Kentucky Jobs, Private Industry and Government, 2009

The top 3% of tax payers in US account for

10% of federal individual income tax payments

20%

30%

50%

1.66%

14.99%

24.62%

24.12%

13.52%

8.29%

9.73%

2.44%

0.40%

0.10%

0.04%

0.06%

0.01%

0.01%

0.01%

0.04%

1.12%

6.42%

9.05%

9.02%

22.68%

19.02%

9.26%

4.04%

2.51%

6.30%

3.49%

7.03%

0% 5% 10% 15% 20% 25% 30%

No adjusted gross income [1]

Less than $9,000

$9,000 to $25,000

$25,000 to $50,000

$50,000 under $75,000 

$75,000 under $100,000

$100,000 under $200,000

$200,000 under $500,000 

$500,000 under $1,000,000

$1,000,000 under $1,500,000 

$1,500,000 under $2,000,000

$2,000,000 under $5,000,000 

$5,000,000 under $10,000,000

$10,000,000 or more 

Distribution of Taxpayers, Federal Individual Income Tax, 2008by adjusted gross income

share of  all tax returns

share of  all income taxes paid

Source: IRS Statistics of Income

Top 0.6% of income earners paid 33% of income taxes

Top 3% of income earners paid 52% of income taxes

Bottom 41% of income earners paid 1% of income taxes

January 20, 2009Front page, top headline, first paragraph

Obama to Call for a New Era of Responsibility

by Laura Meckler and Jonathan Weisman

Washington - Americans poured into the nation’s capital to celebrate the inauguration of the first black president with parties and parades. But with the U.S. in its worst economic crisis since the Depression and at war on two fronts, Barack Obama was expected to embrace a new culture of responsibilty when he takes office at noon…

The Wall Street Journal is 

a mouthpiece of the Republican Party

a socialist rag

a company that employs a lot of journalists who feel that their occupation is in crisis

This decade, the fastest growing market in the Kentucky‐Southern Indiana area was:

Louisville

Evansville

Bowling Green

Somerset

2.9

3.4

4.1

5.5

5.7

5.9

6.4

6.5

6.6

7.8

8.1

8.2

8.2

8.3

9.5

9.6

14.1

15.3

15.7

15.8

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0

Scottsburg, IN

Owensboro, KY

Madison, IN

Elizabethtown, KY

Bloomington, IN

Frankfort, KY

Murray, KY

Campbellsville, KY

Danville, KY

Glasgow, KY

Cincinnati, OH‐KY‐IN

Corbin, KY

Somerset, KY

Louisville, KY‐IN

London, KY

Mount Sterling, KY

Richmond‐Berea, KY

Lexington‐Fayette, KY

Clarksville, TN‐KY

Bowling Green, KY

Population Growth Rates, %, 2000 to 2009

Source:US Census Bureau

Fastest growth rates alongI‐65, I‐75, and Fort Campbell area

‐4.9

‐3.7

‐3.6

‐3.4

‐1.8

‐1.0

‐0.8

‐0.7

‐0.2

‐0.2

0.8

1.8

1.9

2.1

2.2

2.5

2.7

2.7

‐6.0 ‐5.0 ‐4.0 ‐3.0 ‐2.0 ‐1.0 0.0 1.0 2.0 3.0 4.0

Union City, TN‐KY

Harrisburg, IL

Middlesboro, KY

Vincennes, IN

Central City, KY

Huntington‐Ashland, WV‐KY‐OH

Madisonville, KY

Terre Haute, IN

Bedford, IN

Paducah, KY‐IL

Maysville, KY

North Vernon, IN

Mayfield, KY

Greensburg, IN

Jasper, IN

Seymour, IN

Evansville, IN‐KY

Washington, IN

Population Growth Rates, %, 2000 to 2009

Source:US Census Bureau

‐50,000 0 50,000 100,000 150,000 200,000

Murray, KY

Corbin, KY

Danville, KY

Glasgow, KY

Owensboro, KY

Mount Sterling, KY

Frankfort, KY

Somerset, KY

London, KY

Elizabethtown, KY

Evansville, IN‐KY

Bloomington, IN

Richmond‐Berea, KY

Bowling Green, KY

Clarksville, TN‐KY

Lexington‐Fayette, KY

Louisville, KY‐IN

Cincinnati, OH‐KY‐IN

Components of Population Change, 2000 to 2009

Births minus deaths

International migration

Domestic migration

statistical discrepancy

Source:US Census Bureau

Lots of babies at Ft. Campbell, Ft. Knox, E’villeForeign‐born 

migrants to Cincinnati, Louisville, Lexington, 

Bowling Green, Bloomington

US‐born migrants to Louisville, Lexington, 

Bowling Green, Richmond

‐5,000 ‐4,000 ‐3,000 ‐2,000 ‐1,000 0 1,000 2,000 3,000 4,000

Huntington‐Ashland, WV‐KY‐OH

Union City, TN‐KY

Vincennes, IN

Terre Haute, IN

Middlesboro, KY

Harrisburg, IL

Central City, KY

Madisonville, KY

Paducah, KY‐IL

Bedford, IN

Maysville, KY

North Vernon, IN

Greensburg, IN

Scottsburg, IN

Mayfield, KY

Washington, IN

Seymour, IN

Jasper, IN

Madison, IN

Campbellsville, KY

Components of Population Change, 2000 to 2009

Births minus deaths

International migration

Domestic migration

statistical discrepancy

Source:US Census Bureau

The center of the US population east of the Rocky Mountains is:

Indianapolis

Evansville

Danville

Nashville

Thank you