Gauging economic climate change, Pt. 1: Recessions in our lifetime

Past experience is an inadequate guide to our current crisis; nevertheless, we can still learn a lot from past recessions. Let’s examine the past five recessions. I’ve plotted the rate of economic growth since 1973 (economists study real GDP but it’s hard to relate to individual businesses) along with the unemployment rate (an easier to follow index of general economic health).

Their technical durations were 6, 2, 5, 3, and 3 quarters, although if you examine the unemployment rate, you’ll see that the pain continues for much longer. We’re already 4 quarters into the current crisis and not close to the bottom yet.

Unemployment rose 4%, 2%, 3.5%, 2%, and 2.5% respectively. By comparison, the rate has risen almost 2.5% since late 2007 and may go much higher.

As I list the key causes of the past five recessions, note the absence of the kind of system-wide implosion we’re currently experiencing.

The 1973 recession was triggered by the quadrupling of oil prices by OPEC and the cost of the Vietnam War. Lockable gas caps were a sign of the times.

In 1979, oil prices spiked again. A few years later, the Fed imposed tight monetary policy to control inflation, leading to another recession.

A recession begun in 1990 was precipitated by declining business investment, the savings and loan crisis, and the Gulf War and Mideast uncertainty.

The most recent recession in 2001 followed the dot-com bubble and September 11.

These recessions were tough enough on individual businesses. In Boston from 1989 to 1992, conditions were particularly severe. I’ll talk about that in later posts.

Here is a last comment about the unemployment rate. Notice that jobs come back much more slowly than they are lost. Once economists tell us a recession has ended and the economy is growing again, it takes years for jobs to rebound and the economy to feel healthy again.

In the next few posts, I’ll be looking at factors in the current crisis that are changing our economic climate long-term: jobs and income, consumer spending and debt, and the banking mess and global risks.

Topics: Economy