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The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.


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December 05, 2008


The recession in pictorial context

If your head had not yet been turned by economic events, today’s startlingly weak employment report probably did the trick. Rather than repeat all the negative superlatives you are likely to hear, I’ll take the opportunity to step back and take in the current recession in a somewhat broader context. 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:

Non Farm Employment

In the graph above “time 0” represents the peak of a business cycle, or the month before a recession begins (December 2008 for the current recession). “Average” refers to the average experience in the seven previous recessions since 1960 (1960-61, 1969-70, 1973-75, 1980, 1981-82, 1990-91, and 2001). To facilitate comparison across recessions, I have normalized the level of employment at the peak of the business cycle to one. As noted, then, each point represents the level of employment relative to the peak: numbers below one indicate that the number of nonfarm jobs was below the number that existed as the economy entered recession.

Before the November job report, the overall employment picture had been fairly unexceptional compared to the average recessionary experience. That changed, as I guess will happen when a half-million job loss statistic arrives. As of today, a milder than average recession has turned into a somewhat deeper than average recession, at least in terms of employment.

Does this mean we are heading off the map in terms of past experience? It is hard to tell by just focusing on the average experience of the previous seven downturns. The previous two recessions—1990–91 and 2001—lasted only eight months. Assuming that we remained in recession through November—and I don’t think that conjecture will draw much debate—the current episode is already a year in duration. 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:

Non farm Employment

Non Farm Employment

Not surprisingly, in the last two recessions, which were relatively short-lived, the employment situation had already stabilized twelve months after the onset of the downturn. So there may not be much comfort in noting that the employment losses are not yet out of line with experiences of those episodes (especially the 1990-91 version). 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.

The story is similar if we adopt the vantage point of the unemployment rate:

Unemployment Rate

 

Unemployment Rate

Unemployment Rate

It is not yet clear whether the acceleration in job loss is a new trend or the lingering impact of a very bad few months, of which the worst is passing. It's always important to monitor new data and anecdotal reports to determine which way the wind is truly blowing. But today's report raised the stakes on that activity by a considerable amount.

By David Altig, senior vice president and director of research at the Federal Reserve Bank of Atlanta

December 5, 2008 in Data Releases , Economic Growth and Development , Labor Markets | Permalink

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Comments

Thanks. That provides some useful perspective. I might suggest that considering the 1981-82 recession by itself, rather than in combination with its 1980 little brother, somewhat understates the "badness" of that period.

Posted by: Bill C | December 05, 2008 at 10:58 PM

Are the unemployment rate comparisons U-3 across the various recessions? If so, I would be keen to see a U-6 comparison as well, I suspect it would be...illuminating.

Posted by: energyecon | December 06, 2008 at 10:52 AM

Are these apples to apples comparisions? Are the numbers from the prior recessions the numbers that were reported in "real time" or are they "final/revised" numbers?

Posted by: tyaresun | December 06, 2008 at 07:22 PM

"It is not yet clear whether the acceleration in job loss is a new trend or the lingering impact of a very bad few months."
It seems pretty silly to think Congress, the Bush Administration and your Boss would have signed on to a $2.1 trillion rescue package for our financial sector if they didn't wholeheartedly disagree with you.

Posted by: bailey | December 07, 2008 at 06:56 AM

Looks like it could get worse before it gets better.
I think the unemployment data is interesting when you compare it to 1973.

My fear is that the government spending packages will contain an inordinate amount of spending to help autos, spend on green tech, and other pet projects that are not economically viable without subsidies. They should spend on roads and bridges, sewers and infrastructure. Infrastructure investment can cause positive externalities which will help long term growth.


Posted by: Jeff | December 07, 2008 at 09:53 AM

What concerns me is the gradient of the current curves--steeper than average in most instances. Does this concern anyone else?

Posted by: Tito Titus | February 18, 2009 at 11:47 PM

These are some very interesting graphs. The unemployment is what worries me. I just got layed off, so add 1 more to your graph on that.

Posted by: Recession 2009 Victim | February 19, 2009 at 01:46 PM

I'm writing this just as the April 09 stats come out. Could you update the chart? Your way of looking at this is the best I've found.

Posted by: David in AZ | May 08, 2009 at 02:01 PM

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