“It’s not true!” Les Loudly cries out.
At least he doesn’t label me a liar. I just declared to my audience that the recession is over and the recovery almost complete. Les now contests that view. Many of those sitting silently probably share his opinion. It’s amazing how many people know all about the recent recession, the current recovery and the coming expansion of the economy.
“I don’t see any recovery in my business,” Les says.
I take a cheap shot: “You might discover the recovery if you spent fewer hours moaning and more time looking for the business that is there.” He grimaces.
I then unfold notes designed to prove my point. Today I won’t use gross domestic product—the value of all goods and services produced in the legal, measured economy. No, today I’ll use compensation of employees—wages and salaries, plus employer payments for Social Security and fringe benefits.
Compensation tells the human story. It is superior to GDP by getting at both the level of pay and the number of people employed. If people lose their jobs, compensation declines. If a machine replaces those workers, output (the GDP) may remain the same or increase.
In the United States, compensation peaked in the third quarter of 2008 and hit bottom in the first quarter of 2009. The decline (the recession) trimmed 3.8 percent off compensation. The nation has not recovered in full, as far as we know. As of the third quarter of 2010, the latest data available, compensation was only 0.7 percent off the peak. Put another way, the nation has recovered 82 percent of the previous peak.
As the national recovery nears completion, the expansion awaits.
What is true for the nation is not true for all the states. Alaska and North Dakota weakened, but did not actually have recessions. Whereas the national recession lasted nine months, Indiana’s extended for 15 months. While the United States experienced a 3.8-percent decline in compensation, Indiana plunged 5.2 percent. While recently the country stood at 0.7 percent off its peak, compensation in Indiana remained 1.3-percent below its previous high. Thus, Indiana’s recovery is only 75-percent complete, lagging the nation and contributing to Les’ perception of an ongoing recession.
In 18 states, the latest compensation figures exceed the previous peaks. In Kentucky, Pennsylvania and Texas, to name three of the 18, not only is the recession over, the recovery is complete and the expansion of the economy is under way. Alternatively, current levels of compensation in Nevada, Michigan, Arizona and Missouri are furthest down from their pre-recession peaks.
All these good data are available to everyone, yet Les remains unconvinced. He grumbles on, quietly. What he does see deludes him. Perception is not reality, no matter how many times well-intentioned people say it is.
Reality is variable and complex. That’s why simple perception often rules. Les finds it easier to believe the recession continues, even though 28 states already have recovered or are within 1 percent of their prior peaks. Despite this seeming restoration to past levels, the recession involved many changes. If institutions and relationships are not what they had been, then, for Les, something is wrong.
Today Les will find new opportunities replacing expired options. If he chooses to explore his environment, Les can cash in on a growing economy. If not, he can sit, grouse and miss out on the favorable circumstances of our times.•
Marcus taught economics for more than 30 years at Indiana University and is the former director of IU’s Business Research Center. His column appears weekly. He can be reached at firstname.lastname@example.org.