Is This US Recession Worse Than Other Post-World War II Downturns?

There’s too much doom and gloom in the air.  Yes, the economy is in recession.  Yes, I think that the downturn will continue for a few more months.  Yes, we’ll be a flurry of bankruptcies in the coming months.  But current attitudes are worse than the fundamentals dictate.  Let’s compare the current recession with the two worst downturns of the post-World War II era:

The specific indicators I looked at are the ones the “official” recession determining group uses (detail below).  I looked at each concept’s own peak and trough, which are often a month or two offset from the overall recession’s peak or trough.  So far, this recession is milder than the worst we’ve seen since World War II.

The big “if” is that this recession is probably not over yet, so things are likely to get worse.  (However, two of the four coincident indicators turned up in the most recent monthly data.  Probably a blip, but you never know.)  My own prediction: this will end up in the neighborhood of those two other harsh recessions.

Business Planning Implications: Start your contingency planning for the upturn.  Will you have the staff, equipment, resources and financing that you’ll need to accommodate increased business?  Are your sales people charged up and energetically looking for customers (or have they become dejected order-takers)?  There are huge shifts in market share when the economy turns; make sure that you’re on the upside of that shift.

Note on business cycle determination:  There is no government agency involved in declaring a recession.  The private non-profit foundation, the National Bureau of Economic Research, has a Business Cycle Dating Committee that determines the peak and trough of each business cycle.  This is a continuation of an academic research program that dates back to the 1920s.  They primarily examine the four indicators shown above.  Hit their website for the complete list of business cycle dates or their latest announcement.

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Comment by jlounsbury59

2008-12-15 16:28:36

Bill - - -

Merrill Lynch has estimated personal net worth will decline by $10 Trillion in 2008 alone. For the entire 2001-02 recession, net worth decline was approximately $6.2 Trillion. So this recession is already 1.6 times worse by that metric. The comparison will get worse, even if stocks remain at current levels (no further decline), because housing prices have yet to bottom under the burden of the coming wave of additional mortgage defaults under the weight of adjustable rate resets 2010-2012.

I think the spiral is perhaps half-way done, at best, and the metrics you have quoted will at least double. You are right to predict this will rival the two worst recessions, but, if your prediction is in error, it is too weak. I would guess 50:50 odds it will be worse.

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