What We Talk About When We Talk About Recession

Photograph by Duncan Stewart/Getty Images

Do feelings trump facts for small business owners? Three years after the Great Recession ended, 71 percent of small business owners indicated they “believe the United States economy is still in a recession,” according to a survey (PDF) of just over 1,000 of them released on Wednesday, May 30, by U.S. Bank.

The recession that started at the end of 2007 nearly doubled the unemployment rate, crashed the stock market, and wiped out some of the nation’s biggest banks before it ended 18 months later, in June 2009. But it did end, and for three years the economy has been growing, if haltingly. Why the disconnect?

One reason for the confusion is that economists speak a different language than most business owners (and most other people). To economists, a recession is “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real [gross domestic product], real income, employment, industrial production, and wholesale-retail sales,” according to the National Bureau of Economic Research, which officially designates when a recession begins and ends.

That wonky definition doesn’t necessarily match how people perceive the economy, says Richard DeKaser, deputy chief economist at the Parthenon Group consulting firm. “It’s not uncommon to see these kinds of dramatic disconnects between experiences and perceptions,” he says. “Even though an economy may technically be expanding, as it has now for three years, most people feel the economy is in a recession if it’s operating below full employment” or its full potential.

Business owners’ view of the economy may also be colored by headlines about stock prices and unemployment that get more attention than the rather obscure calculations of turns in the business cycle, says Brian Headd, economist at the U.S. Small Business Administration’s Office of Advocacy. “What we see all the time are stock market levels and job levels,” he says. Neither the unemployment rate nor the S&P 500 have returned to pre-crash levels, and Headd says many people think “my 401(k) isn’t back where it was yet, so it must be a recession.”

It’s also true that sectors hit hardest in the downturn, such as construction and real estate, are dominated by small businesses, and that tight bank credit after the financial crisis affected small firms more than it affected corporations that could raise money in the capital markets. The National Federation of Independent Business’s optimism index has remained around recession levels.

It’s not all gloom emanating from the small business sector. In U.S. Bank’s survey, 69 percent of the owners surveyed online described their companies’ financial health as “good to excellent.” That, presumably, is something they can gauge more accurately than economic growth.

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