Europe Now vs 1929

Paul Krugman notes "in Europe, recovery is now behind where it was at the same point of the Great Depression. Here’s European industrial production from the League of Nations starting in 1929 and Eurostat starting in 2007"

The Recession is Officially Over...

...since June 2009.

The NBER annouced it on Sept 20 2010. Lasting 18 months it was the longest post war recession. With an official end to this recession a new slowdown will be viewed as a separate cycle.

Here is the link to all business cycles dates.

Lags between end of recession, unemployment rate peak and fed tightening

Macroblog offers the following table:

Historical lags between end of recession, unemployment rate peak, and beginning of funds rate tightening cycle

End of Recession	Unempl. rate peak	Beginning of funds rate tightening cycle	Months from end of recession to unempl. peak	Months from unempl. peak to beginning of funds rate tightening cycle
Nov 2001	Jun 2003	Jul 2004	19	13
Mar 1991	Jun 1992	Feb 1994	15	20
Nov 1982	Dec 1982	Jun 1983	1	6
(Jul 1980)
Mar 1975	May 1975	May 1976	2	12
Nov 1970	Aug 1971*	Mar 1972	9	7

*Following the 1970 recession, the unemployment rate was 6.1 in December 1970 and again in August 1971. If the December 1970 peak is used, months from end of recession to unemployment peak is 1 and months from unemployment peak to beginning of funds rate tightening cycle is 15.
Source: Bureau of Labor Statistics, National Bureau of Economic Research, and Federal Reserve Board

Rates could stay low for a while

Recoveries'Look

Via CalculatedRisk I came to this great chart from Macroblog on past recoveries and the forecasts for the current one.


Economists expect a much shallower recovery than the past pattern would suggest. One of the deepest GDP decline followed by one of the smallest post war recovery. Not a great combination but forecasts can still be proven wrong.

Current Recession Vs Depression

CalculatedRisk has an interesting post on Depression Scares quoting prof. Robert Shiller. He notes the cumulative US GDP decline form peak is 3.3% so far vs down 10% for a depression. He adds further: "Even though the current recession is already one of the worst since 1947, it is only about 1/3 of the way to a depression (commonly defined as a 10% decline in real GDP). Stated another way, to reach a depression, the economy would have to decline at about the same annual rate as the last two quarters for the next four quarters."

Global Recessions

From the Economist:

Global output per head registered negative growth on four occasions in the past 50 years. The current drop truly looks nasty. Interestingly the forecast drop in oil consumption is close to the average of 75, 82 and 91. Is this too optimisitic or has the world become so much more energy efficient?

Current Recession - The Toll on Jobs

H/T CrossingWallstreet for pointing out this nice animation.

Current Recession vs Past

Via Econbrowser a chart from IMF's latest World Economic Oulook. Two factors make the current US recession particularly tough: "(1) recessions are longer and deeper when associated with financial crises, and (2) recessions are longer and deeper when the downturns are synchronized with recessions abroad."

Changes in Unemployment Rate and Recessions

We saw in the previous post that the unemployment rate is a lagging indicator as it usually peaks after recessions end.

The YoY change in the unemployment rate is less lagging. In 5 of the past 10 recessions it peaked as the recessions was still officially ongoing. On average the YoY change in unemployment peaked 4 months ahead of the unemployment rate itself. The YoY change in unemployment peaked earlier than the unemployment rate in 6 of the past 10 recessions while on four occasions both numbers peaked the same month.

See this chart. Now I know how to highlight recessions in charts. Nice!



Added note: econbrowser looks at 4 week average initial unemployment claims and the end of recessions and concludes: "If subsequent data confirm that the 4-week average of initial claims did indeed reach its peak in the number reported April 2, and if Gordon's pattern holds up, the recovery that many of us had assumed would be quarters or perhaps even years away may instead have started by June"

Unemployment is a Lagging Indicator

Using the St Louis Fed charting tool:

Since 1948 in 9 out of 10 past recessions the unemployment rate peaked after the recession ended and more so for the more recent ones.

Current Recession vs Great Depression

Via Paul Krugman Barry Eichengreen and Kevin O'ROurke compare the current recession to the great depression. Compared to this opinion here and Paul Krugman here they seem much less optimistic. "Often cited comparisons – which look only at the US – find that today’s crisis is milder than the Great Depression. In this column, two leading economic historians show that the world economy is now plummeting in a Great-Depression-like manner. Indeed, world industrial production, trade, and stock markets are diving faster now than during 1929-30. Fortunately, the policy response to date is much better."

Figure 1. World Industrial Output, Now vs Then



Figure 3. The Volume of World Trade, Now vs Then
Their conclusion: "To summarise: the world is currently undergoing an economic shock every bit as big as the Great Depression shock of 1929-30. Looking just at the US leads one to overlook how alarming the current situation is even in comparison with 1929-30.

The good news, of course, is that the policy response is very different. The question now is whether that policy response will work. For the answer, stay tuned for our next column."

Current Recession vs Great Depression

Francis J. Gavin on McKinsey's What Matters (h/t infectiousgreed) compares the current mess to the great depression. He is somewhat reassuring: "The magnitude of the Great Depression was unprecedented and unlikely to be repeated—the unemployment rate in the United States reached 25 percent, home foreclosures were an order of magnitude larger, and the gross domestic product fell by almost half between 1929 and 1933. Furthermore, our economic policymakers and politicians have not repeated the disastrous policies of the past, which included raising interest rates and hiking trade barriers."

His comments on the political backdrop of the great depression are also worth noting: "But the key differences between the current crisis and the past are less economic than political. The Great Depression was the offspring of the killing fields of Europe: the First World War had destroyed trading patterns, undermined currencies, and produced massive public debts. Who would foot the bill for this catastrophe? The Americans had financed the British and French victories, and expected to be paid back in full. The British and French demanded that Germany carry the cost by paying reparations. Germany —which been victorious on their Eastern front and had prevented Allied forces from entering their territory—had agreed to end the war in part because of Woodrow Wilson’s promise not to impose a victor’s peace. When this promise was broken and massive reparations were imposed, a bitter decade-long battle over who would pay what ensued. From this toxic environment of distrust and enmity emerged a series of unsustainable deals, whereby America financed Germany’s reparations to Britain and France, which were recycled back to the United States in the form of war debt payments. If American financing dried up – which it did during the late 1920s—the whole scheme would collapse, taking the international monetary system with it."

He then concludes: "There are valuable lessons from history that can be applied to policy today. But we should keep in mind we also have important advantages our forebearers did not. Most fortunately, we live in an era when the threat of a great power war in the developed world is remote. The major players may have their political differences, but nothing approaching the bitterness and distrust that marked international relations in the last century. In addition, the greater interconnectedness of the world that has grown up over the past 20 years will act as a counterweight to the tendency to pursue purely self-interested policies. This backdrop will make continued cooperation much easier, and should make another Great Depression far less likely."

Current Recession vs Great Depression

Paul Krugman compares industrial production now and then and comments: "At first, the current recession didn’t hit industrial production all that hard. But the pace accelerated dramatically last fall, so that at this point we’re sort of experiencing half a Great Depression. That’s pretty bad."

Worst Post WWII Slump in Industrial Production

Econbrowser compares recessions

Industrial production:

Manufacturing production (since 1973):

and refers to AngryBear with the same IP data in a different format:

The current cliff diving is impressive. 1973 had a similar drop.

Angry Bear's chart shows the average trough happening three months from now.

The current drop does not seem of the "average kind" though.

A Tale of Two Charts

Barry Ritholz and CalculatedRisk trade charts:

(1) Job Losses in post WW2 recessions


(2) Slightly more reassuring, the same with job losses as a % of peak employment



Both note that it has taken longer and longer for jobs to recover with the last three recessions taking the longest to recover from.