Friday, January 09, 2009

Is this Recession Deeper than Others?

David Brooks writes an interesting op-ed in the New York Times on the opinion of economists:

The Romers’ essay exemplifies the economic doctrine that reigned up until a few months ago: fiscal stimulus plans that try to time a recession are dangerous, unproven and unnecessary.

That doctrine has suddenly vanished. But not because we suddenly know how to create effective stimulus plans. Last year, the Congress passed a $165 billion plan that seems to have done almost nothing for the economy. The doctrine has vanished because this recession is deeper than the others and we’ve run out of other stuff to do.
I agree that this recession is unique, just like every other one. But deeper than others? I challenge that statement with the following three graphs, first the monthly percentage change in total nonfarm employment:
Next, the percentage change in real quarterly GDP:

And finally the unemployment rate:

It would appear to me that so far, the data appears to suggest that the recession itself is not yet bad enough to claim it to be the deepest. It is one of the worst in history for the finance industry, just as the 2001 recession was the worst recession for the history of the information technology industry. But in the bigger picture of the whole economy, this recession still seems very modest to me.

1 comment:

Anonymous said...

I hope you are right, but the indicators you are using are lagging indicators. Using those, we still can't say where we are today.

According to the Conference Board, we are right in the thick of it and things are getting worse. I hope they are wrong (and often times they are). Here is their statement on leading and coincident indicators:

"The leading and coincident economic indexes have been falling for more than a year now, and the breadth of their deterioration has been very widespread. The rates of their six-month decline have picked up in recent months and are now the largest since 1991. Meanwhile, real GDP contracted at a 0.5 percent annual rate in the third quarter of 2008, down from a 1.8 percent average annual rate of growth for the first half of the year. All in all, the continued widespread deterioration in the composite indexes suggests that the recession that began in December 2007 will continue into the new year, and the contraction in economic activity could deepen further in the near term."