Tuesday, January 20, 2009

From the Minnesota Federal Reserve

The recession in perspective

The economy is in recession. But how bad is it? How does this recession compare to previous recessions?

This page places the current economic downturn into historical (post-WWII) perspective. It compares output and employment changes during the present recession with the same data for the 10 previous recessions that have occurred since 1946.

This page provides a current assessment of “how bad" the recession is relative to past recessions. It will be updated as new data are released. This page does not provide forecasts, and the information should not be interpreted as such.

The following charts provide information about both the length and depth of recessions.

Tab 1

* Mildest, median, and harshest lines reflect the smallest, median, and largest declines as of each month; they do not reflect specific individual recessions.

Larger Image
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Notes:
1. Employment is nonfarm payroll employment calculated by the Bureau of Labor Statistics.
2. Postwar recessions include the 10 recessions as defined by the NBER that started between 1946 and 2006.

3. Open data table to see how the mildest, median and harshest lines are calculated, and for data on individual recessions.

Tab 1

* Mildest, median, and harshest lines reflect the smallest, median, and largest declines as of each quarter; they do not reflect specific individual recessions.

Larger Image
View Data

Notes:
1. Output is gross domestic product adjusted for inflation as calculated by the Bureau of Economic Analysis.
2. Postwar recessions include the 10 recessions as defined by the NBER that started between 1946 and 2006.

3. Open data table to see how the mildest, median and harshest lines are calculated, and for data on individual recessions.

Post-WWII Recessions

The Business Cycle Dating Committee of the National Bureau of Economic Research determines the beginning and ending dates of U.S. recessions. http://www.nber.org/cycles.html


It has determined that the U.S. economy experienced 10 recessions from 1946 through 2006. The committee determined that the current recession began in December 2007.
http://www.nber.org/cycles/dec2008.html

Length of Recessions

The 10 previous postwar recessions have ranged in length from 6 months to 16 months, averaging about 10 1/2 months. The current recession has surely surpassed the postwar average, but its total length will only be known when the Business Cycle Dating Committee retrospectively determines the final month of the recession.

Depth of Recessions

The severity of a recession is determined in part by its length; perhaps even more important is the magnitude of the decline in economic activity. That is, how much do employment and output fall?

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Clarification of the Data

An important comment by Alex Tabarrok on Marginal Revolution clarifies that:

The mildest, median and harshest recessions in the Fed's graph are Frankenstein recessions, recessions cobbled together by taking bits of pieces of each past recession and assembling them to create a mild, median, and harsh recession - none of which ever occurred.
He then provides another graph which tracks actual individual recessions:

He also provides the email in which the Fed justified their approach to him.

Given all the pressure for massive government intervention to spend and stimulate, it's important to keep it all in perspective.

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2 comments:

Burgess Laughlin said...

As a layman, I am trying to walk away from reading these charts with a conceptual, not graphic, summary:

"In very general terms this recession, so far, is longer but not more severe than most of the other 10 recessions since WWII. What is most worrisome, however, is the combination of great length and a continuing down trend in some measures. This might foreshadow a very long, very deep recession."

Do other readers--who have more knowledge of economics than I do--reach a similar conclusion?

Beth said...

I am not attempting to claim that I am anything other than an educated layman, but what I see with these charts is that a relatively mild recession has taken a steep dive since the spastic interventions of the Fed and the Treasury since this past August.

I have read multiple analyses of the Great Depression which concluded that the stock market crash of 1929 contained no characteristics to distinguish it from earlier crashes which recovered in a matter of months to a couple of years. Critical to the depth and length of the Great Depression were the many harmful responses of the Federal government. These included but are not limited to the Smoot-Hawley tariff, attempts to prevent wages and prices from falling, the creation of massive government programs and consequent enlargement of the debt--even in spite of the punitive taxation of the productive in attempts to fund them.

What concerns me about our situation today is that the incoming administration accepts the more standard Keynesian interpretation of the events surrounding the crash and Great Depression that irrational exuberance, greed and lack of government regulation caused the economic down turn and the New Deal ended it. That's why there is so much talk about stimulus packages, public works projects, increased government control and ownership of formerly private businesses, bailouts, and the need to increase borrowing and spending.

Arguments against this interpretation are being made but are not adequately heard or understood. The more we can individually understand the facts and theory, the better position we can be in to attempt to convince those open to the alternative explanations.

In summary, the current recession does not have to be long and deep if it were left alone to liquidate, resolve and recover…but given who has been recently elected in both the executive and legislative branches of government, that is not very likely to occur.