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Economic News, Data and Analysis

Recession: Two Year Anniversary

This past month (March) marked the two-year anniversary of the recession that began in 2001.
Some observations…
* If the economy were still in recession, April would be the 25th month of the contraction, making it the longest recession in 100 years (save for the great depression); and more than twice the average duration. See Recession dates and durations. The NBER has not yet made a determination as to whether the recession has ended, or, additionally, if a second one has started.
* Despite a stable 5.8% unemployment rate, employment is still very week. A recent data analysis by the Economic Policy Institute shows that the current recession has an unusually large the decline in private sector jobs two years after the recession began. (See graph below…)
* Overall, the recession is/was rather mild as measured by output reductions. GDP has been slow but positive over the past year. Industrial production has improved significantly from its trough, and real manufacturing and wholesale-retail sales has more than surpassed the March 2001 level. (See NBER’s memo.)
* People in the know are suggesting that the first quarter of this year was particularly weak. Industrial production fell by 0.6% in the past two months after a 0.8% gain in January. However, the relatively quick end of the Iraq war is likely to improve consumer and business confidence – and hopefully this will be reflected in increased consumer spending and higher businesses investment.
* One potentially significant drag on the economy is still the continuing fiscal crisis at the state level which, at the very least, is likely to further harm the employment situation.
* Turning points in the macroeconomic situation are notoriously hard to predict, but I think, despite the current weakness, there is a strong possibility that economy may start to improve in the near future. However, I am fully aware that the lovely spring weather might be biasing me in this regard!

(Click for large version)

How Deep Is the Current Recession?: Archive Entry From Brad DeLong’s Webjournal
The Economic Policy Institute has found a measure according to which the current recession is actually the deepest and most severe of post-WWII recessions. The measure? The percentage by which private employment is below its peak level two years after the recession began: “In the two years since the recession began in March 2001, total payrolls have fallen by 2.1 million and private sector payrolls are down by 2.6 million.”
This is, of course, only part of the story: the current recession is very shallow insofar as production is concerned (in large part because of the rapid underlying productivity growth trend), moderate as far as the unemployment rate is concerned (in part because lots of people have dropped out of the labor force during this recession), and deep as far as private-sector employment is concerned.
Which is the “right” measure? Well, it depends on what you are interested in, of course. A balanced picture of the perhaps-still-ongoing recession needs to comprehend all three…

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Filed under: Data, Economics, Economy, Recession, State Economy

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