Comparing Recessions

by on January 12, 2009 at 7:05 am in Data Source, Economics | Permalink

It you look at job losses in this recession compared to previous recessions this recession looks very bad but the labor force is much bigger today than in previous recessions.  Thus, if you look at the percentage change in employment you get a different story.  The Minneapolis Fed crunches the numbers:
1employment_length_small 

and
2gdp_length_small

Of course, this recession is not yet over but this is useful information.  We might not like it but recessions are normal.

Important Addendum: The Fed defines Mildest, Median, Harshest by taking the Mildest employment drop of any recession in that quarter and plotting that.  Thus, the Mildest, Median, and Harshest recessions are Frankenstein recessions, cobbled together from other recessions. I do not think this is a good way to express the data.  See this update for a better method.

1 DanC January 12, 2009 at 7:38 am

But this recession is different! Democrats have clear majorities in the Federal Government and they fear that a down economy in two years may cause political trouble.

But most important, advocates of big government want to scare people into higher taxes, more regulation, and increased government spending.

Make no mistake, Social Democrats hold important positions and they believe that capitalism is flawed and can only be fixed through the political system.

2 D iversity January 12, 2009 at 8:05 am

Good on you, mate, to point this out.

The figures will look worse soon, sure; but where we are now is not all that bad.

3 Steve Miller January 12, 2009 at 8:17 am

It seems pretty silly to throw around the word “depression” at this point, doesn’t it?

4 Curt Fischer January 12, 2009 at 8:33 am

It sure is hard for a non-economist like me to reconcile Alex’s charts with the ones Brian Setser just posted here.

The only things I can think of:

1. Employment and output data lag behind the indicators Setser charted (exports in Korea and Taiwain). This could be for economic reasons or just because the latest data for employment and output aren’t out yet.

2. Asia is worse into recession than we are. This doesn’t seem likely to me, but I have not been following news in Taiwan, Korea, or elsewhere very closely.

3. The recession will impact international trade worldwide more harshly than broader measures or economic activity like “output” or employment. In other words, every economy tends to becoming more domestic. I don’t know anything about how to evaluate if this is true or not.

Also, what is “output”? Isn’t someone on this blog always harping on about measured GDP as an unreliable indicator of true progress? How do we tell if “output” reflects true productivity gains or is just some artifact of fiscal policy?

5 random question January 12, 2009 at 9:15 am

hmm, what program do they use to make those graphs? pretty.

6 Eric January 12, 2009 at 11:01 am

Can someone explain to me why “alternative” measures of unemployment are suddenly more important than the standard measure?

U-6 gets tossed around pretty often, for example. As far as I can tell the series started in 1994 (at 13.8%!), making it difficult to compare to serious past downturns (1980s, 1970s, and esp. 1930s). 13.5% might be very low, historically speaking, just as 7.2% standard unemployment is not high in the context of 20th century unemployment rates.

7 Dave January 12, 2009 at 11:59 am

The Change in Employment graph has gone concave, which is worrying. The beginning dates of recessions are somewhat arbitrary; imagine if they had dated the current one to start in August 2008(currently month 8) instead of December 2007 (currently month 0) – in that case, shifting the current recession’s employment series to the left, we’d be 4 months into it and about in line with the harshest post-war recession. I think this was a slowly developing recession which has recently accelerated its pace downward.

8 Tom January 12, 2009 at 1:10 pm

Dave,

The Dec 07 start date is complete BS. You’re right about an Aug 08 start. And this does make it look a lot worse.

9 Aoi January 12, 2009 at 1:14 pm

Will the MN Fed also be crunching numbers on home and commercial foreclosures, bankruptcy filings, income variance, and stock market valuations for the various recessions it used here. Seems to me there’s more to a recession than job loss, though I like the MN analysis and the point it makes.

10 spencer January 12, 2009 at 1:36 pm

If you calculate the same chart using the household survey data you find that the current recession just surpassed the 1974 and 1981 recession which would make it the worse post war recession except for the 1948-49 downturn.

11 rb January 12, 2009 at 2:27 pm

Anyone,

Can someone explain to me why in the underlying data provided by the FED, they are calculating the min, median, and max change across all 10 of the recessions? Shouldn’t they choose the min, median, and max recession and chart those? What is going on here, why is it important to chart decline range per period?

12 Clark Goble January 12, 2009 at 3:03 pm

Is there a case to be made that the recession “started” last winter but then the Bush stimulus prevented a worse case but ended up merely delaying it.

13 Alex Tabarrok January 12, 2009 at 3:23 pm

[Alex’s Note – my comment turns out to be wrong. I have since updated. See here

http://www.marginalrevolution.com/marginalrevolution/2009/01/comparing-recessions-ii.html
]

rb asks a very good question. The Fed Excel file is easily misunderstood.

To understand what is going on note that mildest, median and harshest are not obvious categories since a recession takes place over many quarters. Is a recession that was mildest in the 4th quarter but harshest in the 9th quarter the mildest recession on record or the harshest?

Thus what the Fed is doing is looking at the mildest, median, and harshest recession in the quarter we are now with respect to the current recession. Thus the recession with the harshest 12th quarter period was the 1948 recession and that is what is plotted and the mildest at this quarter was the 1973 recession. When we come to the next quarter, quarter 13, the harshest is again the 1948 recession but the mildest, by a slight nose, will be the 1980 recession. Thus next quarter when the Fed updates the entire curve for the mildest recession will change.

This is not obviously the wrong thing to do but it’s more complicated than I understood at first glance.

I thank rb for drawing my attention to this important point.

14 Joshua Allen January 12, 2009 at 4:58 pm

@Dave, @Rb, @Alex: My thoughts exactly. One doesn’t have enough information to decide whether or not to cross a river that is “on average, 4 feet deep”.

15 John Dewey January 13, 2009 at 8:21 am

mulp: “but we haven’t seen much boost in new technologies and such in the US.”

Not sure what you mean by new technologies. Certainly manufacturing has continued to grow in the U.S. U.S. manufacturing GDP – the value added by factories located in the U.S. – reached an all time high in 2004, then again in 2006, and once again in 2007. The U.S., with 5% of the world’s population, continues to produce 25% of the manufacturing value added.

Of course, U.S. manufacturing GDP was down in the full recession year of 2008. But manufacturing GDP was down all over the globe, including China.

mulp: “It seems to me the only place that the Bush tax cuts to keep the US out of recession has only served to create jobs in Asia where all the new high tech stuff is created and manufactured.”

What high tech stuff are you referring to, mulp?

16 Barkley Rosser January 14, 2009 at 1:13 am

“1980 recession”? No. Unemployment peaked in late 1982. That was a Reagan recession,
brought on by a wild collision between monetary and fiscal policy that only abated when
the Mexicans threatened to default in August 1982, and Reagan and Volcker cut a deal in
which Reagan did not follow through on the last of his tax cuts while Volcker ended the
monetarist experiment and sharply lowered interest rates. Of course, Reagan would run and
win big on “Morning in America” in 1984. BTW, August 1982 was the moment to buy big and
hold in the US stock market, with the Dow rocketing from around 780 when the deal was cut,
never to get back anywhere near there again.

The US numbers do not look all that bad so far. It is the global numbers that look scary.
We have never seen a downturn, whatever you want to call it, that has been so global, not
ever, not even in the 1930s.

17 Brett January 15, 2009 at 12:45 pm

The best analogy I’ve seen:

Recessions in a free market are like the tide.  It flows out and that is natural.  Sometimes with the sun and moon in alignment you get a particularly low tide.  It’s easy to think that the water will never come back.  We could spend a lot of time and money pumping water onto the beach in vain.  The worst thing you can do is build a high wall off the shore in order to keep the tide from going out again.  This is foolish and would obviously prevent the tide from coming back in as is natural.  Patience. “Confirm thy soul with self-control.”

18 Bird toys March 4, 2010 at 7:42 pm

Good on you, mate, to point this out.

19 delightful pm September 10, 2010 at 9:55 pm

Watch for the Q4 and Q1 GDP numbers to take us well away from that ‘mildest’ line to well below the median as of 5 quarters after the start of the recession. These figures are not painting the true picture

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