Recession: The Sky is Not Falling

So we are in a recession ... What’s the big deal about that? This country goes into recession on an average of about every six years, and this one is right on schedule.

The biggest difference in this recession and past recessions is the Lame Stream Media (LSM), or perhaps the LEFTIST Media would be a better description since they have been in the tank with the Left for the better part of 15 years. All we have heard during this recession is DOOM and GLOOM, which we did not hear in any of the eleven (11) previous recessions this country has experienced since WW2. This time, the media has gone bonkers with left wing propaganda over this recession. If one actually takes time to look at the real raw numbers, this recession is actually a bit better than the earlier ones.

Now I’m not trained on the kinds of numbers the economists use to show just what makes a recession. And by the way, ninety-nine and forty-four one hundredths percent of our “leaders” aren’t either. Therefore, one could say that I know about as much as those in leadership in this country. If the truth were known, I may know a bit more since I am at least willing to do some reading rather than just taking some biased figures fed into the reports by those who want to spend a bunch of money to satisfy political debts and maintain power. I have read numbers from the WSJ, the NYT, and about a half dozen other business journals and magazines. And yeah, even that leftwing rag has posted some numbers, although they then covered up the real meaning with their typical doom and gloom. I tried to figure out a way to put them all into one nice list that would explain how this recession is a typical recession, not “the-sky-is-falling-and-we-are-going-into-depression-next-week” reports that we hear most of the time.

Then I ran across an article by Randall Hoven. Now I don’t know Randall Hoven from Jack, so I decided to see who Randall Hoven was. Is he an economist, a lawyer, or what? To my elation, I discovered that he is neither, which gave me a bit of hope that this guy might just be a smart guy who understand math a heck of a lot better than I. Yep, he does. The guy is an engineer, you know those guys who are plotters and never get in a hurry to do anything until they have the facts together. His education was impressive, at least to me. He has an M.S. in Systems Science & Mathematics, from Washington University, 1985, and before that he received his M.S. in Electrical Engineering, Johns Hopkins U., 1982, with honors. Not bad when it comes to arithmetic learning in my book. Anyhow he came up with some facts and figures that, I am happy to say, line up with a lot of other sources as well. In fact, he even furnished a list of his sources, which is more than the so-called leadership has furnished us in their attempt to sell us on this Spending Plan disguised as a Stimulus Plan. It is actually nothing more than a payback plan to groups and one in hopes of remaining in power in order to get more money from these same groups to stay in power to get more money to ... you get the idea.

Here is what Randall came up with:
The country had a decline of 3.8% culminated in the 4th quarter for the annual pace, this after a decline in the 3rd quarter. That makes the legal definition of “recession” two consecutive quarters of shrinking real GDP somewhat factual. The media, of course, made this to look like “the sky is falling” which suited the leaders in DC just fine because now they could pull the transfer of a lot of borrowed money to their special groups and make it look like they were doing something good for the country.

So if we look at the real numbers, first off, the "annual rate" of 3.8% shrinkage is what we'd get if that same one-quarter pace continued for four quarters. What actually happened was that GDP shrank 0.1% in the 3rd quarter and 1.0% in the 4th, for a combined loss of 1.1% over two quarters. Through all of 2008, the real GDP shrank just 0.2%, because the economy actually grew in the first half of the year. So far not bad and the “sky is not falling.” To date in this recession, and it is okay to call it a recession, real GDP has shrunk 1.1% from its peak, and non-farm payrolls has shrunk 1.9% from its peak. How do these numbers compare to previous recessions?

The maximum drop in real GDP for the previous 10 recessions, peak to trough, ranged from 0.4% to 3.8%, and averaged 1.9%. So far, it has dropped 1.1% in this recession.

The duration of GDP shrinkage, peak to trough, ranged from one quarter to five quarters, and averaged 2.4 quarters. So far, our recession has two quarters of negative growth.

The maximum drop in non-farm payrolls ranged from 1.3% to 5.2% (1949), and averaged 2.7%. So far, payrolls dropped 1.9% in this recession.

The duration of payroll shrinkage has ranged from 4 to 30 months, and averaged 13. So far, payrolls have shrunk for 12 months in this recession.

The peak unemployment rate ranged from 6.1% to 10.8%, and averaged 7.5%. The latest number for the current recession, December 2008, was 7.2%.

Since World War II, we've averaged a recession about every 6 years, start to start.

After looking at these numbers, would one be able to actually declare that “the sky is falling”? Actually, the numbers, like most numbers dealing with money, contain good news and bad news. According to Randall, this is what it means:

The good news is that our current recession is nowhere near unprecedented. In fact, it is better than the average recession in all measures above: real GDP, non-farm payrolls and unemployment rate. In fact, you could say it is a typical recession. It even started about six years after the last one.

The bad news is that this recession is probably not over. If this becomes an "average" post-WWII recession, our GDP will fall another 0.8%, in this quarter (1st of 2009) before it starts growing. And payrolls will shrink another 0.8% over the next month or so, before growing again. And unemployment will peak at 7.5%.

If this recession matches the worst of the previous 10, our GDP will shrink another 2.7% going into the fall. Payrolls will shrink another 3.3% for at least another year, and unemployment will peak at 10.8%.

So simply going by averages, this recession should end this year, maybe even in this quarter or the next. If things go bad, or no worse than in the last 60 years, we might not pull out of it until late this year, with lousy employment figures lagging into 2010.

After all of this, remember that none of the previous recessions was ended by the government spending a trillion dollars. Our current deficit is projected to be 7% of GDP or more. The deficit never exceeded 6% of GDP in any of the previous 10 recessions, or at any time since 1946. That projection, folks, is the result of trying to spend your way out of recession. So, as I have said before, when you are in a hole, STOP DIGGING. Sooner or later that hole is going to get so deep that what you are trying to shovel out is actually just falling back on top of you. And if you have any common sense, you will understand that you are soon going to bury yourself. Unfortunately, those in “leadership” in this country haven’t figured that out yet. Have you?


Data Sources:
Unemployment data came from the Bureau of Labor Statistics: http://www.bls.gov/. Click on "historical tables" under unemployment rate.
GDP and payroll data came from Bureau of Economic Analysis and the Bureau of Labor Statistics via the St. Louis Federal Reserve's Economic Data -- FRED: http://research.stlouisfed.org/fred2/, specifically Series GDPC96 and Series PAYEMS.