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.