Of the 13 recessions that the American public has endured since the Great Depression of 1929–33, none has presented a more punishing combination of length, breadth and depth than this one.
A new Pew Research survey finds that 30 months after it began, the Great Recession has led to a downsizing of Americans' expectations about their retirements and their children's future; a new frugality in their spending and borrowing habits; and a concern that it could take several years, at a minimum, for their house values and family finances to recover.
The survey also finds that more than half of adults in the US labour force (55 per cent) have experienced some work-related hardship—be it a spell of unemployment, a cut in pay, a reduction in hours or an involuntary move to part-time work. In addition, the bursting of the pre-recession housing and stock market bubbles has shrunk the wealth of the average American household by an estimated 20 per cent, the deepest such decline in the post-World War II era, according to government data.
While nearly all Americans have been hurt in one way or another, some groups have suffered more than others. Blacks, Hispanics and young adults have borne a disproportionate share of the job losses. Middle-aged adults have suffered the worst of the downturn in house values, household finances and retirement accounts. Men have lost many more jobs than women. And across most indicators, those with a high school diploma or less education have been hit harder than those with a college degree or more.
Whether by choice or necessity, many Americans have already significantly scaled back their pre-recession borrow-and-spend habits. According to government data, household spending has gone down, savings rates have gone up, consumer credit has remained stable and mortgage debt has plunged during this recession.
The survey finds that the public is starting to see some light at the end of the tunnel. More than six out of 10 survey respondents (62 per cent) say they expect their personal financial situation to improve in the coming year—the most optimistic reading on this question since before the recession began. Likewise, about six out of 10 (61 per cent) say they believe the damage the recession has inflicted on the US economy will prove to be temporary rather than permanent.
One striking finding of the survey is that some of the demographic groups that have suffered the worst economic hits are also the ones most optimistic about a recovery—both for themselves personally and for the US economy as a whole.
Blacks and Hispanics are more upbeat than whites. The young are more optimistic than middle-aged and older Americans. And Democrats are more upbeat than Republicans, even though Democrats have lower incomes and less wealth and have suffered more recession-related job losses (see graph).
These group differences are apparent not just in responses to specific survey questions, but also in a set of statistical models that examine the independent impact of race, partisanship and age on the likelihood that a respondent will express optimism on six different attitudes about the economy tested in the survey, controlling for a range of demographic variables and recession-related experiences. The analysis finds that blacks, Democrats and, on most questions, younger adults are more likely than whites, Republicans and older adults to hold positive views about the national economy and their personal finances, regardless of their income, education, gender or whether they have had difficulty paying their bills, making mortgage or rent payments, or getting or paying for medical care, or have had to cut spending during the recession.
One likely explanation for these seemingly counterintuitive patterns is that in an age of highly polarised politics, Democrats and Republicans differ not only in their values, attitudes and policy positions, but, increasingly, in their basic perceptions of reality.
This is not the first Pew Research survey taken in the past year that shows that the election of Barack Obama (which came at the height of the recession in November 2008) appears to have put his most enthusiastic supporters—especially blacks, Democrats and young adults—in a more positive frame of mind than Obama's detractors about many aspects of national life.
For example, since Obama was elected, Democrats have become more optimistic than Republicans about the state of the national economy. For most of the time that George W Bush was in office, the reverse was true: Republicans were more upbeat—often, much more upbeat—than Democrats.
The most striking feature of the Great Recession is that those without jobs are enduring the longest spells of unemployment recorded in modern economic history. Short-lived spells of unemployment, say one month, typically do not lead to significant financial losses or breaks in career paths. However, long-term unemployment, meaning being out of work for at least six months, is associated with severe consequences for career, income, health and other aspects of well-being. Thus, the current spike in long-term unemployment is a significant development.
The median duration of unemployment in May 2010 was 23.2 weeks, almost six months long and the highest in the post-World War II era. This means that 7.5 million of the 15 million unemployed workers have been looking for work for more than five months. The highest level recorded before this date was 12.3 weeks in May 1983. The increase in the duration of unemployment in the Great Recession has also been dramatic. At the start, in December 2007, the median duration of unemployment was 8.4 weeks.
The share of workers unemployed for more than six months (long-term unemployed) has soared in the Great Recession. In May 2010, 46.0 per cent of the unemployed—6.8 million workers—had been out of work for more than six months. In December 2007, when the recession started, 17.3 per cent of the unemployed—1.3 million workers—had been without work for more than six months.
The mirror image of the increase in long-term unemployment, of course, is a decrease in short-term unemployment. The share of workers unemployed less than five weeks fell from 35.8 per cent in December 2007 to 18.7 per cent in May 2010. The number of workers unemployed less than five weeks is unchanged at 2.8 million.
Looking further into the future, Americans have become more sceptical about the quality of life for the next generation. Respondents were asked whether they thought their children's standard of living would be better, about the same or worse than their own. On balance, more say they expect their children will enjoy a better standard of living. However, the percentage saying this has fallen in the past 10 years. In 2000, 59 per cent of the public said their children would have a better standard of living than they themselves had. By 2002, 61 per cent held this view. Today, 45 per cent say their children will have a better standard of living than they do, while 26 per cent think their children's standard of living will be worse than theirs. An additional 19 per cent say their children's standard of living will be about the same as theirs. The percentage saying their children's standard of living will be worse than theirs is the highest it has been since the General Social Survey first asked this question in 1994.
Views about what sort of economy the next generation will inherit differ significantly by key demographic variables. Young adults are much more optimistic about their children's future. Among those under age 30, 64 per cent say when their children are their age they will enjoy a better standard of living. This compares with 47 per cent of those aged 30–49 and only 35 per cent of those aged 50 and older.