For Mike Dunlap, a national crisis looked very local.
Dunlap, the Atlanta-based head of commercial and private banking at Fifth Third Bank, was confronted in late 2008 with a flood of clients whose businesses were suddenly not making enough money to pay off loans. And that meant the bank might not pay off its own obligations.
“We were in survival mode for 12 to 18 months,” he said. “It was a very scary time, no question.”
Scary times are often followed by cautious times, which helps explain why the recovery from the Great Recession only now — as the recovery nears its sixth birthday — is starting to feel like one.
Even prosperous companies have been slow to hire, and some of the reason is psychological, said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State.
“Companies remember how in September to December of 2008, revenues were falling by 30 percent. When you go through something like that, you have a little bit of PTSD.”
The vast majority of jobs depend on local companies’ ability to get the capital they need. And at long last, banks are looking to make loans.
“With a few exceptions, commercial lending is back to where it was,” Dunlap said. “There’s a strong supply of credit. We are very much in loan growth mode.”
A different recession
Most of the 11 recessions after World War II were triggered by overproduction of goods or a deliberate hike in interest rates as the Fed headed off a surge of inflation.
Not this past one.
This one was a mortal threat to the financial system itself, the way that capital flows from the banks to millions of businesses. The banks gamble by lending their money; the companies gamble by taking on debt.
In good times, the gamble pays off for both sides.
But in the fall of 2008, everybody was losing their bet. Revenues plummeted, so companies desperately cut costs. Within a few months, several million workers had been laid off, which meant further drops in demand for goods, services and – especially – new real estate.
Banks, too, were desperate, terrified of taking risks.
“It was what economists call a balance sheet recession,” said economist Desmond Lachman, resident fellow at the American Enterprise Institute. “Banks raised their lending standards. They required bigger down-payment for homes and higher credit scores.”
Even after the economy started growing the metric that matters most to working Americans – hiring – was anemic. With so many Americans out of work, with foreclosures burdening real estate, with only a short-lived federal stimulus, demand was weak.
The Federal Reserve made borrowing cheaper and still didn’t convince banks to loan, Lachman said. “Instead, they have been buying bonds. So you got an equity boom. The wealthy are doing very well, thank you. It is a recovery that is not very well-balanced.”
Begging relatives
With many lenders unwilling to lend, many small business owners begged relatives, drained savings and showed up at places like Access to Capital for Entrepreneurs, a non-profit that provides small loans to companies too small or risky for banks, said Grace Fricks, ACE founder and chief executive.
In 2009, ACE nearly tripled the number of loans it made. That meant ACE was making less risky loans, but it also meant its former clientele was often shut off entirely from capital.
“A lot of Main Street business were tapped out – restaurants, hair-cutting places, gift shops, shoe stores, handbag stores – anything retail,” Fricks said. “And these people had less net worth to begin with.”
Many small firms cut staff in panic and many just folded, adding momentum to the economy’s downward spiral.
By the time the plunge was over, the U.S. economy had lost nearly nine million jobs. Metro Atlanta hemorrhaged 248,500 jobs – one of every 10 positions – not hitting bottom until March 2010.
In most previous recessions, the economy shifted quickly from reverse to fast-forward and started to accelerate, adding jobs and lifting wages.
Not this time.
Besides the economics, pain and uncertainty reshaped business attitudes, said George Menden, founding partner of Atlanta-based law firm MendenFreiman, which represents many local companies.
Leaning down
“Everybody leaned down during the recession and I don’t think they’ve rehired up to their previous level,” he said. “These kinds of changes were accelerated during the recession.”
In June 2014 – five years after the official end of the recession – the unemployment rate in metro Atlanta was 7.3 percent, more than three points below its peak, but three points above pre-recession level.
Moreover, the official jobless rate didn’t include people who had gone back to school, retired early, taken disability or simply given up looking for a job. So the proportion of Georgians working slipped to levels not seen for decades.
The clearest sign of how slow recovery has been can be seen in data for new building permits, Dhawan of Georgia State said: That number stands in for hiring and growth in general. “It’s not a perfect proxy. But how do people buy houses? Because they are getting jobs with local companies.”
Many more building permits were issued in the years after the 1990-91 recession than after the 2007-09 downturn, even though the population was significantly smaller.
Recent signs are encouraging.
The state unemployment rate has dipped to 6.3 percent — and metro Atlanta’s just fell below 6 percent — though both remain higher than the national rate. During the past 12 months, the state’s private employers have added 127,100 jobs, the best March–to-March growth since 2000, according to the state Labor Department. State officials have also been touting high-profile corporate moves to Georgia like that of Mercedes.
Yet even now the memory of the crisis is hard to shake and still affects decisions, the banker Dunlap said.
“We really have one foot on the pedal and another foot on the brake. We have become very risk averse.”
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