The Great Recession was a period of marked general decline (recession) observed internationally and in Birmingham that occurred between 2007 and 2009. At the time, the International Monetary Fund (IMF) concluded that it was the most severe economic and financial meltdown since the Great Depression.
The causes of the Great Recession include a combination of vulnerabilities that developed in the financial system, along with a series of triggering events that began with the bursting of the United States housing bubble in 2005–2006. When housing prices fell and homeowners began to abandon their mortgages, the value of mortgage-backed securities held by investment banks declined in 2007–2008, causing several to collapse or be bailed out in September 2008. This 2007–2008 phase was called the subprime mortgage crisis. The combination of banks unable to provide funds to businesses, and homeowners paying down debt rather than borrowing and spending, resulted in the Great Recession that began in the U.S. officially in December 2007 and lasted until June 2009, thus extending over 19 months. As with most other recessions, it appears that no known formal theoretical or empirical model was able to accurately predict the advance of this recession, except for minor signals in the sudden rise of forecasted probabilities, which were still well under 50%.
Impact in Birmingham
By the end of 2008, evictions in Jefferson County went up 17 percent to a number higher than the three previous years combined. The recession arrived in Alabama with a vengeance. In October 2008, Alabama’s unemployment rate stood at 5.9 percent. Exactly one year later, that same number had exploded to 11.8 percent, a rate Alabama maintained through the close of the year. The state’s gross domestic product – the total value of goods produced and services - fell by $6 billion in just two years.
Alabama shot up to fourth among states in bankruptcy filings. Home sales in the Birmingham area dropped 29 percent in one year. The state lost 16 percent of its construction jobs in just two years.
Before 2004's purchase of SouthTrust Bank by Wachovia, Birmingham's banking industry boasted 4 of the top 20 banks by assets in the United States. AmSouth Bank merged with Regions Bank in 2006, and BBVA from Spain purchased Compass Bank. By the end of 2008, Wachovia had failed, and was sold to Wells Fargo. Colonial Bank, once a top-20 bank in the country, failed in August. CapitalSouth Bank and New South Federal Savings Bank followed suit. Other local institutions were hit hard due to the recession, with April 15, 2011 seeing both Superior Bank and Nexity Bank failing. RBC Bank, which had acquired First American Bank in 2006, reeled from losses and sold its American assets to PNC Bank during 2011.
The recession also affected new automobile sales. The three major domestic manufacturers: General Motors, Ford, and Chrysler, all felt a major impact. Many local dealerships were closed. Foreign competitors with American production facilities, including Honda Manufacturing of Alabama in Lincoln, which shuttered manufacturing of new vehicles for 60 days during 2009. Gasoline prices hit record highs. New truck and SUV sales hit rock bottom, sinking local customizer Sothern Comfort Conversions hard, as they had recently expanded to a large plant in Center Point on Pinson Valley Parkway.
Birimingham area businesses closed due to the Great Recession
Banking and Finance
- January 1: Wachovia failed
- August 14: Colonial Bank failed
- August 21: CapitalSouth Bank failed
- December 18: New South Federal Savings Bank failed
- April 15: Superior Bank, Nexity Bank both failed
- RBC Bank sold its American subsidiary to PNC Bank due to losses during the recession
Automotive and Transportation
- Southern Comfort Conversions closed
- Honda Manufacturing of Alabama in Lincoln shuttered manufacturing of new vehicles for 60 days
- Thornton, William (October , 2018) "Here’s why Alabama may not be over the Great Recession." The Birmingham News