"Nonfarm payroll employment fell sharply (-533,000) in November, and the unemployment rate rose from 6.5 to 6.7 percent... . November's drop in payroll employment followed declines of 403,000 in September and320,000 in October, as revised. Job losses were large and widespread across the major industry sectors in November."
This is unusually blunt language from a statistical agency like BLS and these developments indicate how much short-term impact the financial meltdown and credit freeze are having on the production economy. And for an economy already 12 months into a recession, these are very tough impacts.
There have been 10 recessions since the end of the Second World War—a conventional dividing line between old and modern economic structures and policy regimes. They can be roughly sorted into short, average, and long durations. Four were short—6 to 8 months in duration; Four were average—10 or 11 months; and two were long—16 months each.
As I wrote earlier, the short and medium ships have sailed, so we should look at the prospect of something quite like the longer recessions of recent times. In those long recessions the unemployment rate rose by an average of 3.7 percentage points. Thus far in this recession, the jobless rate has gone up 1.7 percentage points, as the Bureau of Labor Statistics stated in their release.
On the payroll employment side, the two longer recessions of the modern era (1973-75 and 1981-82) generated job losses amounting to 2.4 percent of employment at the official turning point. As of November, the economy had shed a net of 1.9 million jobs, approximately 1.4 percent of the stock of filled positions in December 2007.
Given these figures, a statistical determinist would suggest that the current recession has 4-6 months left to run, will result in about 1.3 million additional job losses, and about 2 additional percentage points of unemployment.
While statistical determinists are notorious for their optimism, I would like to inoculate readers about some foreseeable pessimism; Next May, with the economy still sluggish, reports of various types will begin to bloviate about “the longest recession since the Great Depression.” At least through next year, that would have to be taken as a deliberate attempt to sensationalize. The downturn that created the depression of the 1930s lasted 43 months—let’s at least wait until any current episode is more than half that lengthy before we start using such comparisons. (With any determination, luck, and policy skill we won’t have to use that line at all.)
Friday, December 5, 2008
Wednesday, December 3, 2008
Recession already 12 months old
Anyone who is reading this blog has, in all likelihood, closely read the National Bureau's December 1 declaration that last December (2007) was the peak of the most recent economic expansion and the starting point (month 0) of a recession.
The Bureau's Business Cycle Dating Committee again seemed to place much weight on the payroll employment numbers which peaked in December 2007 and have declined in each subsequent month. This determination was backed by careful analysis of production and income data including GDP and GDI, peal personal income (less transfers), real business (manufacturing and trade) sales, industrial production, and employment as measured by the Current Population Survey.
The recently ended expansion had lasted 73 months, thus ranking 5th longest of the 32 business cycles chronicled by NBER and of the 11 expansions of the modern policy era that began at the end of 1945. While the duration of the expansion is of some historical interest now, the history of recessions is perhaps now more important.
Since the end of World War II there have been ten complete cycles of recession and recovery; the average recession of that "modern policy" era has lasted ten months. Unfortunately, at the 10-month mark of this episode (October) the credit and other financial markets had gone into crisis. The overall impact of that is as yet unsure, but already the downturn has lasted a bit longer than the post-War average and half again as long as the two most recent recessions (1990-91 and 2001).
If the downturn is still going in May 2009, we will have reached the 17-month average duration of all 32 downturns that NBER has identified as having occured since the mid-1850s. At the extreme, the longest recessions of the modern era were 16 months in 1973-75 and 1981-82; the longest continual period of contraction in the 1930s was 43 months in 1929-33; the longest downturn in the chronology was a 65 month episode lasting from late-1873 to early 1879.
The Bureau's Business Cycle Dating Committee again seemed to place much weight on the payroll employment numbers which peaked in December 2007 and have declined in each subsequent month. This determination was backed by careful analysis of production and income data including GDP and GDI, peal personal income (less transfers), real business (manufacturing and trade) sales, industrial production, and employment as measured by the Current Population Survey.
The recently ended expansion had lasted 73 months, thus ranking 5th longest of the 32 business cycles chronicled by NBER and of the 11 expansions of the modern policy era that began at the end of 1945. While the duration of the expansion is of some historical interest now, the history of recessions is perhaps now more important.
Since the end of World War II there have been ten complete cycles of recession and recovery; the average recession of that "modern policy" era has lasted ten months. Unfortunately, at the 10-month mark of this episode (October) the credit and other financial markets had gone into crisis. The overall impact of that is as yet unsure, but already the downturn has lasted a bit longer than the post-War average and half again as long as the two most recent recessions (1990-91 and 2001).
If the downturn is still going in May 2009, we will have reached the 17-month average duration of all 32 downturns that NBER has identified as having occured since the mid-1850s. At the extreme, the longest recessions of the modern era were 16 months in 1973-75 and 1981-82; the longest continual period of contraction in the 1930s was 43 months in 1929-33; the longest downturn in the chronology was a 65 month episode lasting from late-1873 to early 1879.
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