Quarterly Update: The Economic Downturn in Historical Context

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Quarterly Update:

The Economic Downturn in Historical Context

May 29, 2012 Dinah Walker Analyst, International Economic

How do the recent economic collapse and recovery match up with past cycles? This chart book provides a series of answers, plotting current indicators (in red) against the average of all post–World War II recessions (in blue). To facilitate comparisons, the data are centered on the beginning of the recession (marked by “0”). The dotted lines are composites representing the mildest and the most severe experiences in past cycles. Because the most recent downturn has been compared to the Great Depression, the appendix plots the recent trend lines against the 1930s.

December 2011 marked the fourth anniversary of the start of the most recent recession. It is now possible to say with certainty that this was the worst downturn of the postwar period when measured by a variety of indicators. The economy contracted more and took longer to recover. Forty-eight months after the start of the recession,

unemployment was still 3.5 percentage points higher than at the start of the downturn. This chart book was designed to compare the four years immediately preceding and following the start of postwar recessions, so this will be its final update. The ongoing progress of the recovery will be tracked in the recovery chart book, which can be foun which compares the recent recovery to prior postwar recoveries.

-5%

0%

5%

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15%

-48 -44 -40 -36 -32 -28 -24 -20 -16 -12 -8 -4 0 4 8 12 16 20 24 28 32 36 40 44 48

U.S. Real GDP Growth

Year over Year

Postwar Recession Average Current www.cfr.org/cgs

Data Source: Bureau of Economic Analysis (BEA).

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-15%

-10%

-5%

0%

5%

10%

15%

20%

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U.S. Real GDP

Relative to Start of Recession

Data Source: Bureau of Economic Analysis (BEA).

-10%

-8%

-6%

-4%

-2%

0%

2%

-48 -44 -40 -36 -32 -28 -24 -20 -16 -12 -8 -4 0 4 8 12 16 20 24 28 32 36 40 44 48

U.S. Federal Budget

Change in Deficit, % of GDP

Data Source: U.S. Treasury.

-30%

-20%

-10%

0%

10%

20%

30%

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World Trade

Trade Level Relative to Start of Recession

Data Sources: Organization for Economic Co- Operation and Development (OECD).

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-2 0 2 4 6

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Percentage Points

Unemployment Rate

Data Source: U.S. Bureau of Labor Statistics (BLS).

-20%

-15%

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0%

5%

10%

15%

-48 -44 -40 -36 -32 -28 -24 -20 -16 -12 -8 -4 0 4 8 12 16 20 24 28 32 36 40 44 48

Nonfarm Payrolls

Data Source: U.S. Bureau of Labor Statistics (BLS).

-30%

-20%

-10%

0%

10%

20%

30%

-48 -44 -40 -36 -32 -28 -24 -20 -16 -12 -8 -4 0 4 8 12 16 20 24 28 32 36 40 44 48

Industrial Production

Data Source: Federal Reserve Board.

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-4%

-2%

0%

2%

4%

6%

8%

-48 -44 -40 -36 -32 -28 -24 -20 -16 -12 -8 -4 0 4 8 12 16 20 24 28 32 36 40 44 48

Capacity Growth

Year over Year

Data Source: Federal Reserve Board.

20 30 40 50 60 70 80 90

-48 -44 -40 -36 -32 -28 -24 -20 -16 -12 -8 -4 0 4 8 12 16 20 24 28 32 36 40 44 48

Manufacturing Sentiment

Postwar Recession Average Current

www.cfr.org/cgs

Data Source: Institute for Supply Management (ISM)

50 60 70 80 90 100 110 120

-48 -44 -40 -36 -32 -28 -24 -20 -16 -12 -8 -4 0 4 8 12 16 20 24 28 32 36 40 44 48

Consumer Sentiment

Data Source: University of Michigan.

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-60%

-40%

-20%

0%

20%

40%

60%

80%

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Total Vehicle Sales

Relative to Start of the Recession

Data Source: BEA.

-15%

-10%

-5%

0%

5%

10%

15%

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Vehicle Miles Traveled

Data Source: DoT

-15%

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0%

5%

10%

15%

-48 -44 -40 -36 -32 -28 -24 -20 -16 -12 -8 -4 0 4 8 12 16 20 24 28 32 36 40 44 48

CO

₂

Emissions Growth

Data Sources: World Resources Institute, Energy Information Administration.

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0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

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Investment Grade Spread

AAA Bond Yield Minus Treasuries

Data Source: Federal Reserve Board, Bloomberg.

0%

1%

2%

3%

4%

5%

6%

7%

-48 -44 -40 -36 -32 -28 -24 -20 -16 -12 -8 -4 0 4 8 12 16 20 24 28 32 36 40 44 48

BAA Spread

BAA Bond Yield Minus Treasuries

Data Source: Federal Reserve Board, Bloomberg.

-60%

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-20%0%

20%

40%

60%

80%

100%

120%

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Equity Market Performance

Data Source: Bloomberg.

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Appendix: The Current Recession Compared to the Prewar Average and the Great Depression

The economic cycle framework can be used to compare the current cycle to prewar (World War II) recessions and the Great Depression. The thick red line represents the current recession; the thin blue line, the postwar average; the thick green line, the Great Depression; and the thin gold line, the prewar average.

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-100%

-80%

-60%

-40%

-20%

0%

20%

40%

-48 -44 -40 -36 -32 -28 -24 -20 -16 -12 -8 -4 0 4 8 12 16 20 24 28 32 36 40 44 48

Equity Market Performance

Relative to Start of Recession

Prewar Recession Average Postwar Recession Average

Great Depression Current

www.cfr.org/cgs

Data Sources: Bloomberg, NBER.

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