- REUTERS/Jim Young
In the nine years since the Federal Reserve’s last rate hike, the US has gone through a housing-bubble burst, a financial crisis that nearly destroyed the global banking system, the worst recession since the Great Depression, and a slow but steady recovery marked by moderate, consistent growth.
During the darkest days of the crisis, the Fed dropped its benchmark interest rate to near zero in its emergency effort to bring liquidity to the financial markets and stimulate growth.
Now the Fed is considering a rate hike at their final 2015 meeting on December 15-16. The last time the Fed raised rates was in June 2006, and rates have been kept as close to zero as possible since December 2008.
Here’s how 28 major financial and economic indicators have evolved in the era of zero-interest rates.
The Federal Reserve last raised interest rates on June 29, 2006. As the economy began deteriorating in late 2007, the Fed started cutting rates, eventually reaching a target rate of zero on December 16, 2008, where rates have remained for the last seven years.
During the Great Recession, real GDP fell by about 4% from just under $15 trillion in Q2 2008 to $14.4 trillion in Q2 2009. Since that time, the overall economy has rebounded, with Q3 2015 GDP estimated at $16.4 trillion.
Manufacturing was hit hard in the recession. The value of manufacturers’ new orders dropped from $487 billion in June 2008 to $330 billion in spring 2009. New orders recovered over the next three years, but have largely remained flat since 2012, with the exception of an abnormally large spike in July 2014.
The Federal Reserve Board’s manufacturing-production index tells a similar story. The index fell about 20% between November 2007 and May 2009, before rising back to levels similar to those before the crisis in recent years.
The Institute for Supply Management’s Manufacturing PMI Index also shows the recession and recovery. Values of the index below 50 indicate a shrinking manufacturing sector, while values over 50 indicate expansion. The index was at or below 50 between February 2008 and July 2009, and it has been above 50 in all but three months since. November 2015 showed the first reading at or below 50 since December 2012.
Other sectors of the economy saw similar patterns. The ISM Non-Manufacturing Business Activity Index covers the service sector of the economy. As with the manufacturing index, scores below 50 indicate contraction, and scores above 50 indicate expansion. The service-sector index was below 50 for most of late 2008 and the first half of 2009, but it has since returned to expansionary territory.
Construction spending began falling before some of the other indicators of economic activity, dropping or remaining stagnant through 2006 and 2007. Construction also took longer to start recovering, largely owing to the continued unwinding of the housing bubble, and it only hit bottom in February 2011.
Global trade slowed during the recession but then picked up. US exports dropped from an annualized rate of about $1.79 trillion in Q2 2008 to a low of $1.54 trillion in Q1 2009. As of Q3 2015, exports are back up to around $2.12 trillion.
The US economy is largely based on consumer activity, and this also took a hit during the recession. Consumption of goods and services fell from $10.1 trillion in May 2008 to $9.8 trillion in April 2009 and has since recovered to just under $11.3 trillion in October 2015.
The labor market also saw a sharp drop during the recession. The number of Americans with jobs dropped from a high of 138.4 million in January 2008 to a low of 129.6 million in February 2010. Since then, job growth has been slow but consistent, and, as of November 2015, 142.9 million Americans have nonfarm payroll jobs.
The unemployment rate shot up during the recession, reaching a high of 10% in October 2009. Since then, the rate has steadily come down, reaching a new post-recession low of 5.0% in October 2015 and staying there in November.
The broader measure of “underemployment” — which includes the unemployed, potential workers who have given up trying to find a job, and part-time workers who would rather be working full-time — also rose rapidly during the recession and then slowly dropped over the next several years. Underemployment hit a peak of 17.1% during fall 2009 and spring 2010, and has fallen to 9.9%% in November 2015.
Full-time employment just passed a major milestone. In November 2015, just over 122 million Americans worked full-time, beating the prerecession high of just under 122 million in November 2007. The number of full-time workers hit a low of 110.6 million in December 2009, as many Americans found themselves out of work or only able to find part-time jobs.
Initial claims for unemployment benefits peaked shortly after the Fed moved interest rates to zero, with the four-week moving average hitting 659,250 in March 2009. Jobless claims have steadily fallen since, reaching levels below those seen before the recession in recent months.
The number of job openings fell by more than half during the recession, hitting a trough of 2.1 million in July 2009. But American companies are hiring again: The September 2015 count of 5.5 million openings was much higher than the prerecession norm.
Americans who kept their jobs saw their hours get cut during the recession. The average number of hours worked dropped to between 33.0 and 33.1 hours per week for much of 2009, climbed to between 33.6 and 33.8 hours by 2012, and stayed mostly in that range ever since.
Before the financial crisis, average hourly wages for private-sector production and nonsupervisory workers were growing at around 4% per year. In the recovery, however, wage growth has been one disappointing area, with year-over-year growth stuck around 2%.
With more people working, consumers are starting to spread their wings again. Nontransport durable-goods sales have rebounded from a low of $110 billion in April 2009 to a healthier October 2015 value of just under $157 billion.
Americans are also buying cars again. November’s auto and light-truck sales of 18.1 million units at an annualized rate was double the low point of 9 million units in February 2009. The giant spike in the summer of 2009 coincides with the “Cash for Clunkers” program that was part of the stimulus package.
Consumers are also going back into stores. Retail and food sales hit a post-crisis low of $155.5 billion in March 2009, while the October 2015 measure of $187.9 billion was near the all-time high since the series started in 1992.
The housing market took a long time to recover after the bubble burst. Housing prices didn’t hit a low point until January 2012, and they still haven’t returned to the stratospheric heights seen in the mid-2000s.
Sales of existing homes have had a choppy several years. After falling precipitously during 2007, sales zigzagged between 2009 and 2011. In recent years, recovery has been steadier, but, as with prices, sales are below the heights of the housing bubble.
Sales of new single-family homes, however, have had a slower recovery. Although the October 2015 annualized rate of 495,000 houses is higher than the February 2011 low of 270,000, it is still well below the peak-bubble rates of over 1 million houses.
The housing collapse brought with it a ballooning of the mortgage-delinquency rate, which shot up above 10% between 2009 and 2012. Homeowners turned a corner in Q3 2012, and the rate has been dropping ever since, although, as of Q3 2015, delinquent mortgages are still more common than before the crisis.
Credit-card delinquencies, on the other hand, peaked fairly early on in the recession and have had a steady decline ever since. In Q3 2015, the delinquency rate of 2.15% was far lower than the rates around 4% before the crisis.
Americans are generally feeling better about the economy as well. After plummeting during the financial crisis, the University of Michigan’s Consumer Sentiment Index has generally been on an upward trend for several years.
And finally, small businesses are also generally feeling good. The National Federation of Independent Businesses’ Small Business Optimism Index has followed a path roughly similar to that of consumer sentiment — deteriorating during the recession, but then on a general upward trend in the recovery.
The stock market crashed during the financial crisis, with some of the worst days Wall Street had ever seen coming among the chaos of collapsing mortgages and failing banks. Shortly after the zero-interest-rate policy began, however, the market hit its bottom and began a six-year-long bull market.