The world changed five years ago, in September 2008. On September 15 investment banking giant Lehman Brothers declared bankruptcy, sending a shock wave through the financial world, freezing the credit markets and causing overnight massive layoffs that sent the unemployment rate surging to a 14-year high.
Many mark the start of the Great Recession with the Lehman collapse but the economy had been in recession since the previous December. If that weren't bad enough, gasoline prices surged to record highs in July. By early October real economic fear gripped the country and much of the world, resulting in a series of controversial government remedies, some of which continue today.
So, where are we today, five years after all of this started? A survey by Country Financial suggests many Americans do not feel their personal financial security or the economy overall are any better compared to five years ago.
Fifty-four percent say they feel less financially secure now than they did five years ago and another 19% feel the same. Just 27% feel more financially secure.
How's the U.S. economy doing? Nearly half in the survey said the economy is worse than it was five years ago and another 19% say it's about the same. Only 29% say it's better.
Economist Joel Naroff, of Narroff Economic Advisors, in Holland, Pa., is among the 29% who say the economy is better. At least, he says it is as good as could have been hoped.
“The two sectors that collapsed, housing and finance, are usually the leaders during a recovery and it took four years for housing to start to come around and finance is still in the process of healing,” Naroff said.
Added to the problems, he says, European and Asian economies have also been weak. It should be no surprise that economic growth is anemic, at best. Yet, he says, it seems to surprise a lot of people, which is part of the problem.
“It is that perception that is, in part, holding things back,” Naroff said. “Businesses are not convinced the economy will shift into high gear so they are holding back on hiring. That has kept the unemployment rate at unacceptably high levels. Worse, with so many people looking for work, firms have had no pressure to raise wages. Real earnings have stagnated and in a consumer-driven economy, it is hard to expand robustly if households don't have the financial ability to lead the way.”
And the outlook isn't promising for people hoping for a pay raise. Until the unemployment rate falls to a level where businesses have to bid for workers, thereby raising wages, the recovery will continue at a lackluster pace, he says.
When quizzed about the lasting effects from the Great Recession, consumers in the Country Financial survey cited “a hit to savings” as the biggest scar, even more so than the loss of home value. At the top of the list of lasting effects that still worry Americans are a reduced retirement nest egg – 22% – and depleted emergency savings – 21%. By comparison, just eight percent mention reduced home value.
That could be because the housing market appears to be in the beginning stages of a recovery. In fact, in the last year the housing market and auto sales – two sectors devastated by the Great Recession – have becoming the strongest pillars in an otherwise weak U.S. economy.
“The housing and vehicle sectors have recovered, in part, because of low rates and growing confidence about the future,” Naroff said. “While people are not exuberant, they are no longer fearful of losing their jobs. Given that they have run their vehicles into the ground, this growing expectation about the future is leading to a pick-up in demand.”
As carmakers have racked up record sales month after month, the fleet of automobiles on U.S. highways has gotten newer and more fuel-efficient, and that has paid an unexpected dividend. Despite a recovering economy demand for gasoline has continued to decline, removing pressure on supplies and prices.
Investors driving housing market
“As for housing, the market has changed to where investors are becoming a key element of demand,” Naroff notes. “This created a bottom in prices and started the upturn. As prices rose, more people had the equity to both sell the homes they wanted to shed for years and also buy a different one.”
If this trend continues, he says the number of people “underwater” on their mortgage will dwindle sharply and that will lead to renewed health in the housing market.
In the meantime, the last five years have left very real economic scars on a wide swath of the U.S. population. In the Country Financial Survey, nearly half of those questioned said they don't expect any economic improvement in their lives in the next five years.
Forty-six percent expect to experience another recession in the next five years and another 32 percent aren't sure. Thirty-six percent say improvements in the job market will make them feel more financially secure.
"It's not surprising Americans have a cautious outlook on the next five years, given the ongoing impact of the recession," said Troy Frerichs, director of investments-wealth management at Country Financial. "The best way to approach financial uncertainty is to be prepared for anything.”
The world changed five years ago, in September 2008. On September 15 investment banking giant Lehman Brothers declared bankruptcy, sending a shock wave thr...