One way to look at this is to examine the trajectory of employment relative to December 2007 levels (when this recession began) and compare it with the average trajectory of relative employment in other recessions:
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A more apt comparison might therefore be the “bad” recessions of recent memory, the 1973–75 and 1981–82 episodes, which both lasted sixteen months.
Here, for your viewing displeasure, are those comparisons:
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The trajectories suggested by the relatively long-lived, more severe recessions of 1973-75 and 1981-82 are almost certainly more sensible comparisons at this point. And, as bad as it is right now, we are still a fair distance from the pace of relative employment losses in those episodes.
This is an interesting observation and it helps to put the current situation in historical perspective. Let me add my own theory.
I think that what is happening in the 4Q of 2008 and the 1Q of 2009 will be the "tear the band-aid off quickly to get it over with" wave of layoffs. Here is a graph of job creation for the last 10 years:
Click for a larger image
The best read of job creation for the latest expansion is 8.2 million jobs (from 129,822,000 in August 2003 to 138,078,000 in December 2007). This figure alone is very important. It tells us that job creation was low. Why? My personal thesis is that companies have become incredibly streamlined over the last 30 years; in general they now only hire when it is absolutely essential. As a result total job creation is decreasing for expansions. This is the natural result of the productivity increase we have seen over the same time.
So far this year we've lost 1.9 million jobs or 23% if all jobs created during the latest expansion. The worst rate of job losses for a recession over the last 60 years is about 50% in a recession that occurred in the 1950s. So, we're about halfway there. For the US to get to the 50% mark we need to lost about another 2.1 million jobs. Assuming a 250,000 - 500,000 rate per month, that means we have about another 3-6 months of ugly job losses to go.
After that my hope is we see a big fiscal package approved to start pumping money into the economy. This will make the 4th quarter a fair but not great half year.
I could be wrong in all of this. The economy likes to make an ass out of economists -- and actually does so with alarming frequency.
3 comments:
One thing I'm struck by - and this nod to the comparison with the 73-75 recession fits - is how much history is 'rhyming' with 1975-6.
Economically -
a. Big buildup in oil prices, followed by returning to a more "normal" price. (Luckily no shock).
b. Nixon's canny use of fiscal prime pumping, to boost the economy, which led to difficulties, i.e., stagflation, later - which Carter couldn't do much about.
c. The recession itself, if it continues, based on these charts, look to have a similar course.
Politically -
a. Nixon's crimes - Bush's crimes, though unprosecuted in the case of Bush.
b. Big foreign war, as part of the issues of the day.
c. Deep involvement of military with Middle East.
d. Big push for "greening" the nation. Carter and Obama similar here.
e. Similar Democratic majorities in Congress - though the difference is 2006-8 the majority is rising, while the 1970's majority was fading.
f. Rise, "from nothing" of a seemingly very "morally good" person, as President.
I do worry - given the Republican's no consequences use of the filibuster (allowed by Dem majority), the media love for controversy (witness all the content free bloviating about Blagovich/Obama), that Obama may be hamstrung. For such a political talent, I hope they are preparing to make sure they can be effective.
A forum I'm following is looking at the events of October 1857, which was created by a previous collapse in credit... there are many similarities with this period to now.
I'm surprised you haven't fully brought the point full circle.
Those old recessions, at least in your words, involved huge job losses that were partially due to the "fat" hiring practices of industry. If we were to peel off 50% of the recent "lean" (just above need) growth it would mean companies would be severely cutting into their "bones" through all the muscle.
Whereas in the past 50% decline in the past was a lot of fat being trimmed with maybe some muscle or bone shaving.
How bad would the job losses in the 50's looked if those companies had grown in more lean environment. Would they have needed to cut 50%?
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