The collapse of the global bank Lehman Brothers in September 2008 may have brought down the world’s financial system had the remaining banks not been bailed out by the taxpayers of the world. The global nature of the financial sector meant a worldwide credit crunch followed and turned the economy downwards into a deep recession, the worst the world had seen for 80 years.
The September 2008 Lehman Brothers collapse may be the moment most people remember in the crisis but anyone studying the gross domestic product (GDP) data emanating from the Bureau of Economic Analysis (BEA) would have noticed that the US economy had peaked in Quarter 4 of 2007 and was valued at $14.9tn at that time. It fell in Q1 of 2008 and the data gave 6 months of a warning of what was coming.
From its peak in Q4 of 2007 the US economy reached its lowest point in Quarter 2 of 2009, when the economy was valued at $14.3tn. This was a $634bn decline, equivalent to 4.3% in real terms from Q4 of 2007.
4.3% may not sound a lot so to put some context to it, the fall of $634bn is equivalent to 24 Vermont economies being lost. In 2008 624k people lived in Vermont, so it could be said that 15m people’s economic lives were wiped out in that short period of 18 months. It’s not a pretty sight, but the reality is a lot worse.
I am using Vermont for perspective as it is has the smallest economy of all the states in the union, valued at about $26bn in 2008. Therefore a “Vermont” is worth about $26bn at this time.
The Great Lakes Economic Region fell by $156bn by Q2 2009, equivalent to 7.3%
When you drill down into the gross domestic product by region, state and industry, you find that some suffered a lot more than others in the 2008 financial crisis. In the pursuit of clarity, I have created an index, with Q4 of 2007 the base index of 100. I have then graphed the Q2 2009 index for the real gross domestic product for each US economic region for the entire economy (All industries).
The US index fell to 95.7 by Q2 of 2009, a 4.3% decline. The Mideast region fared the best with an index of 99.4 while the Great Lakes was hit the most, with an index of 92.7, a 7.3% fall, equivalent to $156bn, or 6 Vermont’s.
I have then split the All Industries economy into the private industries sector and the government sector. The government sector tends to be more consistent and is not subject to large and immediate stimulus or sharp cuts. That is borne out by this analysis. The Government sector index actually increased to 101.7 during the 18 months of the recession, a 1.7% increase in real terms. In the Southwest region the index rose 3% and only in New England did the index fall, in this case by .6% to 99.4
But the government sector makes up less than 14% of the economy so it cannot compensate for the losses suffered in the private sector. The losses suffered by private industries are deeper than the national figure of 4.3% would suggest. The national index for private industries has fallen to 94.9, a 5.1% fall in private sector GDP in this 18 month period. The best performing region remains the Mideast at 98.9, a 1.1% drop, and the worst is still the Great Lakes, where the index of 91.7 registers an 8.3% decline since Q4 of 2007.
Crisis? What Crisis. A dozen states increase their Gross Domestic Product during the 2008 Recession
If, in 2008, you lived in Alaska, the Dakota’s, Wyoming, West Virginia, Delaware, New York, the District of Columbia, Louisiana, New Mexico, Maryland or Oregon, you may have been thinking “Crisis? What Crisis” because all of these locations enjoyed an increase in gross domestic product between Q4 0f 2007 and Q2 of 2009.
Likewise if you lived in Nevada, you would have endured the deepest recession of all states with a drop of 13.2% in 18 months. Michigan suffered a 12% drop, Arizona an 11.3% fall and Florida a 10% fall.
At first glance what is noticeable is that the states that did best in the recession have larger than average government sectors and/or a significant mining industry. But it is surely a little hard for the rest of the country to take when it sees that New York, where the financial crisis started, where Lehman Brothers was based, and whose banks were bailed out actually increased its GDP during the 2008 recession.
If you’d like to see some further analysis by industry and by state, you can follow it here.
