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home : most recent : statewide implications October 17, 2018

2/12/2018 6:34:00 PM
OPINION: Stock decline leading to recession?

Morton J. Marcus is an economist formerly with the Kelley School of Business at Indiana University. His column appears in Indiana newspapers. His column appears in Indiana newspapers.

Once again, with the stock market tumbling as Lego blocks struck by a playful toddler, the inexplicable is explained by experts who declare, “The fundamentals are sound.”

We recall the anxiety of the Great Recession which was built on these the facts:  The number of private sector jobs in the United States fell by 11.6 million between June 2007 and January 2010, a decline of 9.9 percent. Indiana’s experience was a job loss of 316,000 from June 2007 to February 2010; down by 12.2 percent.  

These private sector job losses result from market conditions which require divine explanation. Government jobs rise and fall with the political thought waves of elected and appointed deep thinkers.

Business cycles have three stages: recession, recovery and expansion. The decline in business activity and an accompanying loss of jobs (in many, but not all cases) is the recession.

The recovery is an ambiguous matter. Firms may go out of existence, change locations, products and services, but the volume of activity (revenue, tonnage) may regain a previous high. Likewise, the number of jobs may again reach earlier levels, but they may be different activities done by different people.  Recovery is not restoration of the past.

Expansion takes us beyond to higher levels of activity, involving the ever-popular “More”. We seek more things, more income, more travel, more exercise because we presume they are good and will make us happy.

The recession in the U.S. dated from June 2007 (as above), but when did it end? In terms of jobs, the low point nationally was reached 31 months later in January 2010. In Indiana the bottom was reached that February.

Thus, with the first pitches of Spring training 2010 the recovery began. For the nation, the recovery lasted 52 months through (May of ’14). Hoosiers, not to be hurried by a possible fad, took 62 months (April of ’15) to reach previous job totals.

Since the recovery ended, we’ve been off to the races. The U.S. has seen a rise of nine million jobs. For Indiana, the expansion added about 120,000 jobs to date.

Will the recent decline in stock prices signal or even cause the next recession? It could, but it doesn’t have to.

People who put money into stocks, may not need those funds today to buy staples. Hence, the grocers will not be denied business, the truck drivers will still have deliveries to make, and the factories will maintain employment.

If those investors borrowed money and cannot pay back what they borrowed, because the stock has fallen below their purchase price, they and their lenders will not be buying staples and the economy could become unglued.

Yes, consumer spending has been strong, corporations did make good earnings, and the malignant policies oozing from D.C. have yet to take effect. Could that be enough to avoid a recession? Let me know who has an answer.

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• OPINION: Uncertainty, not inflation, is the stock market's worry

Editor, John C. DePrez Jr.; Executive Editor, Carol Rogers; Publishers: IBRC and IAR

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