In Just 2 Years the Economy Lost 8.6 Million Jobs, Erasing 8.5 Years of Job Creation. It Took Only 5.5 Yrs To Recover

It was only six years ago that the Great Recession began in the Fall of 2008. Lest you yawn at this Friday's announcement of tying the record for consecutive months of job growth (9 million jobs created over 48 months) and last week's announcement of 2Q GDP growth of 4.6% (annualized rate), it's worth reviewing how awful things were such a short time ago. It could have been worse than the Great Depression. It certainly started out worse.

"Between March and September 2008, eight major US financial institutions failed - Bear Stearns, IndyMac, Fannie Mae, Freddie Mac, Lehman Brothers, AIG, Washington Mutual, and Wachovia - six of them in September alone. And the damage was not limited to the US. More than 20 European banks, across 10 countries, were rescued from July 2007 through February 2009."

The failures and near-failures weren't limited to just the banks in question. This rippled out. Credit dried up.

"The seasonally adjusted value of commercial paper outstanding in the U.S was $2,150bn at the end of June 2007. A year later, this had shrunk to $1,741bn. A year after that, in June 2009, it was down to $1,229bn. It had still not recovered in June 2013, when the outstanding amount was just $998bn. Asset-backed commercial paper, which is used to finance mortgages, shrank even more dramatically, from $1,200bn in June 2007, to $523bn  two years later and a mere $276bn in June 2013."

The result was a contraction in international trade, purchases, and hiring. Without financing, people don't buy cars and houses, start businesses, or hire employees. Financing is the support structure for the modern economy. Without it, GDP collapses.

"The volume of world trade fell by close to 20 per cent in the twelve months from April 2008, against around 10 per cent over the twelve months from June 1929. World equity markets fell by around 50 per cent over twelve months this time, against around 20 per cent in 1929-30. ...
Between the third quarter of 2008 and the first quarter of 2009, the annualized rate of decline in GDP in the six largest high-income countries ranged from 6.4 per cent in France, 7 per cent in the UK and 7.1 per cent in the U.S. to 10.2 per cent in Italy, 11.7 per cent in Germany, and 13.8 per cent in Japan."

In just two years - from January 2008 to December 2009 - the US economy shed 8.6 million jobs. To put that in context, in the seven prior years of George W.'s presidency the economy had created only 5.6 million jobs. In just two years, we lost 3 million more jobs than we had created in seven. It was as if every job created from October of 1999 forward had disappeared, 8.5 years of job creation erased. Fortunately, it took only 5.5 years - not 8.5 years - to recover those jobs.

The fact that in the wake of this financial crisis - a financial crisis worse than what triggered the Great Depression - we have tied the record for consecutive months of job creation is truly remarkable and worth celebrating.


Quotes taken from Martin Wolf's The Shifts and the Shocks: What We've Learned-and Have Still to Learn-from the Financial Crisis