Tuesday, December 21, 2010

Back to the Future: A Comparative Look at Two Recoveries Part II

This is the second part in a comparative look at our recovery versus the recovery from the 1981 recession that I began examining with this diary back in March of this year. The first part of this comparison looked at employment growth coming out of each recession and some productivity concerns that I have regarding our ability to grow demand at a pace fast enough to outstrip the current exponential explosion in productivity growth. This part of the comparison will look at some of the indicators that show how close this recovery is to the strength of the recovery from the 1981 recession and how in a few areas we are even ahead of that recovery.

I first want to begin by looking at the private sector as related to stock market performance and corporate profit growth. This recovery has been extremely strong in those measures and exceeds even the incredibly strong growth in these measures from the recovery from the 1981 recession. I have indexed the corporate profits back to the peak prior to the recession (since the 81 recession was a double dip, I took it back to the peak from just prior to the 1980 recession).
corp prof

And for the stock market graph, I indexed the S&P 500 to the end of the recession (as opposed to the trough so as not to let our extremely low bottom skew the data).

As you can from these graphs, in the corporate profits and stock market, this recovery has been incredibly strong, but again much of these profits can be traced back to the job cuts and productivity gains that were undertaken during the recession. However, as long as growth continues and productivity remains high, it is likely that at least the corporate profits chart will remain on an upward trajectory (I will not make any stock market prognostications here however).

Also, while lagging the recovery from the 1981 recession, the current recovery is still fairly strong in terms of real retail sales and industrial production as can be seen below, while definitely lagging in capacity utilization (another harbinger of our productivity gains).
Retail Sales Indexed

Industrial Production Indexed

Capacity Utilization Indexed

Note that while our retail sales do lag the 80's recovery, they appear to be accelerating again at a pace that is very similar to the 80's recovery after a couple of pullbacks earlier in our recovery. So, while our recovery is definitely not as strong as the recovery from the 1981 recession (especially in terms of job creation), it isn't that far off in other measures and is actually outperforming that recovery in the corporate sector of the economy.