exports during the contraction and recovery for each cycle. the recovery in exports for this cycle was quicker than for the prior recession in 2001. firms reacted to the significant challenges presented by the recession by focusing on cost cutting and improved efficiencies. these efforts led to a rise in measured labor productivity ( chart 17 ). with labor compensation growth declining due to the weakness in the labor market, the higher labor productivity resulted in sharp declines in the costs of producing goods – unit labor costs. the decline in unit labor costs helped firms to restore their profitability. as demand conditions improved, firms on net began to increase their employment and hours worked by their staff ( chart 18 ). it is important to note that improvement in the demand for workers will not necessarily lead to a steady decline in the aggregate unemployment rate. during the recession, many unemployed workers withdrew from the labor force and stopped bis central bankers ’ speeches actively looking for employment. this can be seen by the decline in the labor force participation rate ( chart 19 ). while there are around 15 million unemployed workers, there are also around 9 million workers who are working part time for economic reasons ( as opposed to their own choice ), and around 1. 3 million “ discouraged ” workers who want a job but who are not currently actively looking for work – and therefore are not counted as unemployed. as firms decide to increase their total hours, some of this additional labor demand will take the form of firms restoring part - time workers to full - time status – an action that does not reduce the unemployment rate. in addition, as conditions begin to improve in the labor market, discouraged workers may decide to reenter the labor force and to renew their search for a job. this reentry pushes up the measured unemployment rate until these reentrants find new employment. as the recession ended, consumption growth returned to positive, supported by improvement in disposable income growth and a leveling off of the household saving rate ( chart 20 ). household wealth began to recover as equity markets improved and the deterioration in house prices abated, supported in part by demand created by the housing tax credit programs ( chart 21 ). as conditions in financial markets improved, banks ceased tightening their lending standards ( chart 22 ). lending activity stopped contracting, and credit became more readily available for large firms that had access to the credit markets ( chart 23 ). midway through 2010, however, questions started to arise as to whether the economy was entering a “ soft - patch ”

that an entire decade ’ s worth of job growth was lost. household wealth declined sharply as well during the great recession due to losses both in equity and real - estate wealth. the household saving rate increased in reaction to this negative shock to household wealth ( chart 8 ). several factors were likely behind the higher saving rate. first, as already noted, households likely increased their saving rate to begin to rebuild their wealth. second, given the deterioration in the labor market, households would also have a strong “ precautionary demand ” for saving to help buffer their consumption in the event of a job loss. finally, homeowners might react to falling house prices by increasing their saving rate in order to rebuild the capacity to make a down payment on a future tradeup house. in more extreme cases where house price declines have put owners in a negative equity position where the value of the house is now less than the balance on the mortgage, homeowners may increase their saving rate to have the capacity to pay off their mortgage to avoid a costly foreclosure. at the same time that the real economy was contracting there was an on - going crisis in financial markets. the balance sheets of banks and securities firms were under severe strain and liquidity was drying up. a good barometer for problems in the financial sector is the price for credit default swap ( cds ) contracts for financial firms ( chart 9 ). these cds prices started to rise in 2007 as news of losses for subprime mortgages began to hit markets. there was a bis central bankers ’ speeches jump in cds prices in march 2008 when bear sterns was taken over by jpmorgan chase. for a brief period over the summer of 2008, cds prices retreated. this was more evident for securities firms and may reflect the opening of the primary dealer credit facility ( pdcf ) that allowed primary dealers to obtain liquidity from the federal reserve on a collateralized basis. following the bankruptcy of lehman brothers in september 2008, these cds prices increased dramatically. in response to the deterioration in the economy as well as to mounting loan losses, banks tightened their lending standards and credit spreads increased. this can be seen using data from the federal reserve ’ s senior loan officer opinion survey ( chart 10 ). values above zero represent tightening of standards, widening of spreads and weaker loan demand. all three were taking place as the economy entered the recession. a consequence was a sharp contraction of lending activity ( chart 11 ). to the extent that the decline