3 Ways the Next Recession Will Be Different

NEW YORK (MainStreet) — If the second half of 2009 and 2010 were a time of economic recovery, then 2011 has by and large felt like a relapse. Skyrocketing oil prices from instability in the Middle East cut into consumer spending, the prolonged debt ceiling debate chipped away at business confidence and the European debt crisis continues to enrage the stock market.

All of this has only renewed concerns among analysts and average Americans that the U.S. would suffer a dreaded double-dip recession, but according to several economists MainStreet spoke with, even if we do enter into another recession later this year or in early 2012, it won’t be nearly as damaging as the Great Recession of 2008.

“If there is another recession, I think it wouldn’t be as severe and it would also be shorter,” says Gus Faucher, senior economist at Moody’s Analytics. “And the reason for that is a lot of the imbalances that drove the previous recession have been corrected.”

As Faucher and others point out, banks are better capitalized now, the housing market has shed (however painfully) many delinquent homeowners who signed up for subprime mortgages before the recession and U.S. corporations have trimmed their payrolls and are sitting on ample cash reserves to help weather another storm. At the same time, consumers have gradually improved their own balance sheets by spending less and paying off more of their debt.

That said, another recession wouldn’t be a walk in the park for U.S. businesses or consumers since the country would experience a worsening of an economy that is still trying to recover from the first downturn. Any new job cuts, mortgage delinquencies and revenue loss – however mild – would effectively be piled on top of previous losses, making it feel that much more severe.

Fewer Job Losses, but Higher Unemployment Rate

This severity will likely be most evident in the labor market. The country lost more than 8 million jobs across all sectors of the economy during the first recession, causing the national unemployment rate to roughly double from 5% to 10.1% at its worst point. Few if any economists expect job losses this time around to be as significant or widespread, but the major difference is that many of those lost jobs have yet to come back, and the unemployment rate has been hovering around a comparatively high 9% for months.

“Unemployment is not going to double from 9% to 18% now, but it could get up to 10% and maybe more, hitting those highs we experienced last time around,” says Paul Dales, senior U.S. economist at Capital Economics in Toronto.

Others like Faucher predict that the unemployment rate could go as high as 11% in a second recession. That may only be a 2% increase from the current situation, but it would represent the highest unemployment rate at any point since the end of World War 2, surpassing the 10.8% rate at the tail end of the 1982 recession.

Initially, many of the same industries that suffered job losses in 2008 and 2009 would experience layoffs again in the next recession, with manufacturing and construction businesses leading the way, according to Mark Price, a labor economist with the Keystone Research Center. But unlike last time, some sectors might escape largely unscathed. In particular, Faucher points to the education and health services industries, which grew in the aftermath of the recession and have a better long-term outlook than most professions.

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