(The article was co-authored by Matthew Jason.)
The Wall Street Journal released its latest monthly poll of leading economists this week, and the average prediction of the 53 economists interviewed on the survey was that the recession the United States is experiencing will be in the past by September. Does this mean the recovery is at hand, and Americans can start actively shopping for new cars and homes? Not exactly. The same economists predicted that the economy will not recover enough to bring down unemployment until at least the second half of next year. In fact, the economists predicted that another 2.6 million Americans will lose their jobs in the next 12 months. When Brian Williams, Charlie Gibson, and Katie Couric come on television this fall and tell America that the President’s economic stimulus plan has worked and the recession is over, these will probably not be words that resonate all that much with most Americans.
What Americans need to understand here is that the country is not just experiencing a normal, garden variety, recession. What the country is likely experiencing is more serious than a basic recession. Dictionary.com defines a recession in basic terms as “a period of an economic contraction, sometimes limited in scope or duration.” To be a little more definitive, most economists say there is not a recession unless GDP (Gross Domestic Product) is negative for a period of two of more consecutive quarters. What America is experiencing is a period during which business, employment, and stock-market values have all declined quite dramatically.
Recessions then, by their common definition, are over as soon as a fiscal quarter takes place where GDP is not negative. It is unlikely that most Americans will see this recession as over as soon as one slightly improved quarter is in the books. Despite what they may hear on the evening news later this year, the effects of this recession will still be there. Most Americans will not again be optimistic about their country’s economic well being for quite some time. Using the Michigan Consumer Sentiment Index, my partner Bill McInturff did some research last month for a blog entry that many of you have read. If not, it is definitely worth reading. The long and short of it is that it takes at least two to four years before consumer sentiment really bounces back, and we are now only at the one year mark.
While there is definitely a question whether or not the recession will be over this year, let us take the economists at their word and presume fourth quarter GDP is in positive territory and the recession is officially over. What impact could this turn of events have on the 2010 midterm elections? If history repeats itself, as it so often does, a recession ending in September of this year could be very detrimental to Democrats in Congress. The last recession our country experienced officially ended in middle to late 1991, and the unemployment rate did not reach its climax until June of the following year, the year Bill Clinton was elected President of the United States.
If the economists are correct, the timing for the 2010 midterm elections will be eerily similar, and the Democratic Party, which now has all the perceived power to change the country’s financial conditions, could face the same uphill battle that George H.W. Bush did under very similar circumstances in 1992. It may or may not happen, but it sure would be nice to see Republican candidates around the country rallying behind Clinton’s now famous campaign slogan. “It’s the economy, stupid.”