How does this Recession Compare to other Recessions?
If you are a chart-aficionado like me, then you’ll love Josh Lehner’s article showing how the Great Recession (or The Lesser Depression) compares with other recessions in the US and other Financial Crises throughout the world. I’m copying his charts and adding my own commentary.
First of all, how this recession compares to all post WWII recessions:
These lines measure unemployment rate increases from the start of their recessions. This recession (illustrated here as the red line) began in December 2007 when unemployment was 4.7% and peaked two years later after an unemployment rate increase of a little over 6% (this chart is inverted).
A few takeaways:
1. We went into this recession at a fairly normal rate of employment loss. It sure as sugar didn’t feel that way going into it … the moral of the story being that scary times always feel like “it’s never been this scary”.
2. Yes, this is the deepest cut we’ve had to unemployment post WWII. The early 80s recession started when unemployment was already fairly high (even though peak unemployment was about the same time).
3. Yes, this is by far the longest we’ve taken to recover. The 2001 recession (AKA 9/11 recession/dot com bubble/NASDAQ recession) was the runner up with length of time for job recovery. We’re just shy of halfway there on the jobs recovery. At this rate of jobs recovery, we’ll be back to where we were in three years. This makes this jobs loss recovery about twice as long as the 2nd runner-up and about 3-4 times the average time of recovery. This coincides with the Fed’s recent commitment to keep rates low for another … three years (their considerations are more complicated with this; I’ll get around to explaining Taylor’s Rule at some point).
Of course, everyone is probably wondering how this recession compares with The (not-so) Great Depression.
The US Treasury has great informational pieces that they release on an ongoing basis. I’m not sure if it’s a testament to me slipping into economic nerdom or the government getting better at communication, but I find myself hanging out on the government informational websites more and more.
You’re welcome to look deeper into the chart, but compared to other financial crises, our unemployment losses are nothing to complain about. We’re the red line. One can observe a distinct economic turnaround at a point when most (or all, but one) countries kept sliding downward. People will usually take two points of view with this. Either it was because of a natural market turnaround, or because of government intervention that served as an economic tourniquet to the bleeding jobs. Either way, I’m just happy it happened.
Looking at how we compare to The Great Depression, we’re smelling like roses comparatively speaking. By this point during The Great Depression, we would have just hit rock bottom for both unemployment and the stock market. This time around, we bottomed out about two years before they did at that time.
And lastly, for just the actual unemployment rate:
You can see that all the countries’ unemployment rates started at slightly different points (the previous chart zeroes out where countries start and just looks for the unemployment rate change). This chart is more or less the same information as the above chart. A key thing to point out is that this chart is over 13 years.
Getting down to the practical matter of investing, I personally see very good news in these charts. In general, whether you’re looking at just US recessions (the top chart) or global financial crises (the 2nd two charts), once a turnaround has gained momentum (which I’d argue it has), it keeps going. You can see that sometimes there’s a pause in the turnaround, but it’s generally a temporary halt in the march to recovery.
I feel that it’s a great time to invest. I believe that downturns are cathartic to an economy. They naturally clean out the inefficiencies. When money is flowing people, governments, and businesses get sloppy in how they run things. The past few years I believe that our society has become smarter. At a minimum we can see that companies are more productive than they’ve ever been (as measured by earnings efficiency along with workforce productivity). I feel that as we recover, it will be a very robust recovery because the jobs being created are not sloppy jobs like during the dot com era when kids could get a $60,000/year job with only a GED. Or during the mortgage boom where you could come off a 20 year prison sentence, hop on a bus and go be a mortgage broker (which for the record I imagine that this hardly ever happened). I believe the jobs being created are quality jobs.
Also, anecdotally, I’ve noticed a lot of “now hiring” signs on places around Denver. This week alone, I’ve seen four “now hiring” signs on the door of Starbucks, Great Clips, Good Times and then last night I took my kids to frozen yogurt and saw a now hiring sign there. Granted, these are not the kinds of jobs the masses are holding out for, but this is an early indicator to me. It tells me that businesses are seeing the demand come back into the market. Economic downturns come down to a demand issue (or spending, or sales or whatever you want to call it).
The sales have been on a whole fairly solid for about two years, but companies have been hesitant to take on the risks of expansion. There are flickers of hope that the groundhogs are coming out of their holes again and not getting scared of their shadows. There’s a lot in the market that is poised for economic activity. There’s a lot of available labor. Money is cheaper than it has been in nearly everyone’s lifetime. Businesses have record amounts of cash on hand as a whole.
The time is now to look at these things and come to some decisions and make sure that your own finances make sense. Every week I come across people who, whether they realize it or not, have their finances oriented around out-of-date fears. Often this only hurts you. The world never waits and the train is leaving the station.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Investing in securities, including stocks and bonds, is subject to market fluctuation and possible loss of principal. No strategy can assure success or protect against loss.
Chad Gordon is registered with, and securities are offered through LPL Financial, Member FINRA/SIPC.