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Economic Recoveries since the 1970s

Guy Lion

January 2010

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Introduction

We gathered visual data to observe how quickly Consumer Spending rebounds after a recession and how quickly Unemployment improves.

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Data Sources

Data sources: BLS for unemployment rate; BEA for GDP and Consumer Spending. All figures are seasonally adjusted. The changes are annualized and also inflation adjusted (real).

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Recession classification

My use of the term ‘recession’ captures different dates than the ones of the National Bureau of Economic Research (NBER). The NBER classification of a recession is complex and relies on many other variables than just GDP contraction alone. I focused more on periods of explicit negative GDP growth even if comingled with intra quarters of growth. So, I have a few double dip and triple dip recessions. Changing time selection would probably not affect the analytical direction of this visual analysis.

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Consumer Spending

Change in Consumer Spending in recoveries

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

-T3 -T2 -T1 T1 T2 T3 T4

Quarterly period before or after start of Recovery

1973

1980

1990

2001

2008

Avg. 3.2% since 1970

Transition between recession and recovery

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Consumer Spending narrative

Avg. Consumer Spending growth in first year of recoveryRecession

1973 6.3%1980 6.5%1990 2.9%2001 3.1%

Looking at the graph on previous slide, we note Consumer Spending is volatile and typically recovers quickly. This makes sense as Consumer Spending accounts for 2/3ds of GDP.

Taking volatility out of the data by focusing on average growth in the first year of the recovery, we see that the older recessions (1973 & 1980) saw a robust rebound in Consumer Spending close to 6.5% at twice the 3.2% average since 1970. While the two more recent recessions (1990 & 2001) saw Consumer Spending rebound around 3.0% slightly below the historical average.

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The Strong Recoveries (1973 & 1980)

GDP C. spending1973Q3 -2.1% 1.4%1973Q4 3.9% -1.2%1974Q1 -3.5% -3.5%1974Q2 1.0% 1.4%1974Q3 -3.9% 1.7%1974Q4 -1.6% -5.7%1975Q1 -4.8% 3.4%1975Q2 3.1% 6.8%1975Q3 6.9% 5.8%1975Q4 5.3% 4.3%1976Q1 9.4% 8.2%

GDP C. spending1980Q2 -7.9% -8.8%1980Q3 -0.7% 4.4%1980Q4 7.6% 5.4%1981Q1 8.6% 2.2%1981Q2 -3.2% 0.0%1981Q3 5.0% 1.6%1981Q4 -4.9% -3.0%1982Q1 -6.4% 2.6%1982Q2 2.2% 1.4%1982Q3 -1.5% 3.1%1982Q4 0.3% 7.5%1983Q1 5.1% 4.0%1983Q2 9.3% 8.2%1983Q3 8.1% 7.3%1983Q4 8.5% 6.5%

Both periods suffered long and brutal recessions (red zone) marked by up to triple dips including quarters with strong GDP growth only to fall right back into quarters with negative GDP growth. In both cases, Consumer Spending (green zone) rebounded vigorously to twice the historical average of 3.2% as mentioned earlier.

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The Weak Recoveries (1990 & 2001)

GDP C. spending1990Q3 0.0% 1.5%1990Q4 -3.5% -3.1%1991Q1 -1.9% -1.1%1991Q2 2.7% 3.1%1991Q3 1.7% 1.5%1991Q4 1.6% -0.2%1992Q1 4.5% 7.1%

GDP C. spending2001Q1 -1.3% 1.6%2001Q2 2.6% 1.5%2001Q3 -1.1% 1.8%2001Q4 1.4% 6.4%2002Q1 3.5% 1.4%2002Q2 2.1% 2.1%2002Q3 2.0% 2.7%

In contrast to the previous slide, the two periods shown above showed very short and mild recessions with lackluster recoveries in Consumer Spending that barely revert back to the historical mean as mentioned earlier.

This is the U vs the V phenomena. Severe recessions are followed by robust recoveries. Mild recessions are followed by lackluster recoveries.

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What does 2008+ looks like so far?

GDP C. spending2008Q1 -0.7% -0.6%2008Q2 1.5% 0.1%2008Q3 -2.7% -3.5%2008Q4 -5.4% -3.1%2009Q1 -6.4% 0.6%2009Q2 -0.7% -0.9%2009Q3 2.2% 2.8%

# of Avg.Recession Quarters GDP

1973 7 -1.6%1980 11 -0.1%1990 3 -1.8%2001 3 0.1%2008 6 -2.4%

The 2008 recession was severe in both length (6 quarters) and especially magnitude (avg. GDP -2.4%). This may suggest that the recovery in Consumer Spending could look more like a V (robust) than a U (lackluster).

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Unemployment rate in recoveriesUnemployment rate in recoveries

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

-T3 -T2 -T1 T1 T2 T3 T4 T5 T6 T7 T8 T9 T10 T11 T12

Quarterly period before or after start of Recovery

1973

1980

1990

2001

2008

Transition between recession and recovery

Avg. 6.2% since 1970

The severe recessions (1973 & 1980) suffered much higher unemployment rates. But, the latter decreased rapidly and shortly at the onset of the recovery. So far 2008 is following the severe recession pattern. The weak recessions (1990 & 2001) experienced moderate unemployment levels. But, their unemployment rate continued to increase for years into the recovery. However, the unemployment for the 2001 recession remained under the historical average of 6.2% even after increasing for years into the recovery.

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How many quarters into recovery did unemployment peak?

Great contrast between the severe recessions (1973 & 1980) and the mild ones (1990 & 2001).

How many quarters into recovery did unemployment peak?

-2 -1 0 1 2 3 4 5 6 7 8 9

2001

1990

1980

1973

Re

ces

sio

n y

ear

# of quarters into recovery

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Interaction of all three variables The Severe Recessions

GDP C. spending Unemploy. GDP C. spending Unemploy.1973Q3 -2.1% 1.4% 4.80% 1980Q2 -7.9% -8.8% 7.33%1973Q4 3.9% -1.2% 4.77% 1980Q3 -0.7% 4.4% 7.67%1974Q1 -3.5% -3.5% 5.13% 1980Q4 7.6% 5.4% 7.40%1974Q2 1.0% 1.4% 5.20% 1981Q1 8.6% 2.2% 7.43%1974Q3 -3.9% 1.7% 5.63% 1981Q2 -3.2% 0.0% 7.40%1974Q4 -1.6% -5.7% 6.60% 1981Q3 5.0% 1.6% 7.40%1975Q1 -4.8% 3.4% 8.27% 1981Q4 -4.9% -3.0% 8.23%1975Q2 3.1% 6.8% 8.87% 1982Q1 -6.4% 2.6% 8.83%1975Q3 6.9% 5.8% 8.47% 1982Q2 2.2% 1.4% 9.43%1975Q4 5.3% 4.3% 8.30% 1982Q3 -1.5% 3.1% 9.90%1976Q1 9.4% 8.2% 7.73% 1982Q4 0.3% 7.5% 10.67%1976Q2 3.0% 3.7% 7.57% 1983Q1 5.1% 4.0% 10.37%1976Q3 2.0% 4.3% 7.73% 1983Q2 9.3% 8.2% 10.13%1976Q4 2.9% 5.3% 7.77% 1983Q3 8.1% 7.3% 9.37%1977Q1 4.7% 4.7% 7.50% 1983Q4 8.5% 6.5% 8.53%1977Q2 8.2% 2.2% 7.13% 1984Q1 8.0% 3.5% 7.87%1977Q3 7.3% 3.9% 6.90% 1984Q2 7.1% 5.9% 7.43%1977Q4 -0.1% 6.2% 6.67% 1984Q3 3.9% 3.1% 7.43%1978Q1 1.4% 2.4% 6.33% 1984Q4 3.3% 5.4% 7.30%

1985Q1 3.8% 7.0% 7.23%1985Q2 3.4% 3.7% 7.30%1985Q3 6.4% 7.8% 7.20%1985Q4 3.1% 0.9% 7.03%

The yellow zone captures the unemployment rate for the 12 quarters into a recovery.

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Interaction of all three variables The Weak Recessions

GDP C. spending Unemploy. GDP C. spending Unemploy.1990Q3 0.0% 1.5% 5.70% 2001Q1 -1.3% 1.6% 4.23%1990Q4 -3.5% -3.1% 6.13% 2001Q2 2.6% 1.5% 4.40%1991Q1 -1.9% -1.1% 6.60% 2001Q3 -1.1% 1.8% 4.83%1991Q2 2.7% 3.1% 6.83% 2001Q4 1.4% 6.4% 5.50%1991Q3 1.7% 1.5% 6.87% 2002Q1 3.5% 1.4% 5.70%1991Q4 1.6% -0.2% 7.10% 2002Q2 2.1% 2.1% 5.83%1992Q1 4.5% 7.1% 7.37% 2002Q3 2.0% 2.7% 5.73%1992Q2 4.3% 2.4% 7.60% 2002Q4 0.1% 1.4% 5.87%1992Q3 4.2% 4.5% 7.63% 2003Q1 1.6% 2.1% 5.87%1992Q4 4.3% 5.0% 7.37% 2003Q2 3.2% 3.8% 6.13%1993Q1 0.7% 1.6% 7.13% 2003Q3 6.9% 5.7% 6.13%1993Q2 2.6% 3.9% 7.07% 2003Q4 3.6% 2.2% 5.83%1993Q3 2.1% 4.4% 6.80% 2004Q1 2.8% 3.9% 5.70%1993Q4 5.4% 3.6% 6.63% 2004Q2 2.9% 2.2% 5.60%1994Q1 3.9% 4.5% 6.57% 2004Q3 3.0% 3.5% 5.43%

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Interaction of all three variables 2008 +

GDP C. spending Unemploy.2008Q1 -0.7% -0.6% 4.93%2008Q2 1.5% 0.1% 5.37%2008Q3 -2.7% -3.5% 6.07%2008Q4 -5.4% -3.1% 6.87%2009Q1 -6.4% 0.6% 8.07%2009Q2 -0.7% -0.9% 9.27%2009Q3 2.2% 2.8% 9.63%

So far, the 2008 + period has the profile of a severe recession. Hopefully, this will translate into the typical pattern of a strong V shape recovery. Although, visual patterns with such small samples may be much less than meaningful.

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A Few Interesting Related Pictures from the Blogosphere

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Normal vs Jobless Recoveries

Source: seekingalpha.com

V shape, severe recession robust recovery

U shape, mild recession weak recovery

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Delay between end of recession and labor market recovery

Source: EPI.org

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Unemployment history

Source: publicradio.org

Note again the different slopes of the decline in unemployment… steep in 1973 and 1980. Flatter in 1990 and 2001.

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Employment-Population Ratio

The increase in this ratio from 1950 to 2000 is due to women rising participation in labor force

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The Dark Side of Productivity