Thursday, July 14, 2011

The Severity of the Great Recession

Kevin J. Lansing of the San Francisco Fed offer some graphs that illustrate the severity of the Great Recession: one compares the decline in real household consumption per person in the 2007-2009 recession to the recessions of 2001 and 1990-91; another compares the decline in real household net worth per person in these three recessions.

Lansing offers an additional figure worth contemplating: the change in the employment/population ratio since 1988. The unemployment rate has some well-known difficulties as a measure of the employment situation: for example, "discouraged" workers who have given up looking for jobs are not counted as officially unemployed, but rather as out of the labor force. But the employment/population ratio is just based on dividing two numbers--employment and population. The shaded areas in the figure show periods of recession, when the employment/population ratio does tend to fall.

But the decline in the employment/population ratio in this recession is enormous: 5.2 percentage points over four and a half years: from 63.4% in December 2006 to 58.2% in June 2011. Back in the grim double-dip recession of the early 1980s, for comparison, the employment/population ratio fell 3 percentage points over a bit more than three years, from 60.1% in December 1979 to 57.1% in March 1983.

These enormous declines in consumption and in asset values and the loss of jobs, of course, help to explain why the economic "recovery" is sometimes being called the Long Slump. The pattern also offers some background as to why the federal budget talks seem so intractable: when a recession dents the economy this badly, passions are going to run high.