Unemployment August: 9.1%

The current employment recession is by far the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only the early '80s recession with a peak of 10.8 percent was worse).

The unemployment rate was unchanged at 9.1% (red line). The Labor Force Participation Rate increased to 64.0% in August (blue line). This is the percentage of the working age population in the labor force. The participation rate is well below the 66% to 67% rate that was normal over the last 20 years, although some of the decline is due to the aging population.

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The Great Recession Continues

For most people, GDP is an economic abstraction that has little meaning. Employment levels, on the other hand, are a more compelling measure of the economy. Here, then, is a chart of total nonfarm employment, which peaked in January 2008, a month into the last recession. As of last month, nonfarm employment was a painful 4.9% off the peak.

My preferred GDP metric is the per-capita variant. I take real GDP and divide it by the mid-month population estimates from the Census Bureau, which has reported this data from 1959 (hence my 1960 starting date). By this measure, Q2 2011 GDP is 3.4% off its peak.

This chart is a look at Real GDP since 1950 with recessions highlighted. As we can see, at present, more than two years after the end of the last recession, real GDP is still 0.5% off the all-time high set in the last quarter of 2007. The recession officially began in December of that year.

According to the NBER's analytical method, which focuses on major peaks and troughs as boundaries, the June 2009 end for the last recession makes perfect sense. But if you expect the end of a recession to be a return to some semblance of economic normality, then, to paraphrase the immortal words of Yogi Berra, the last recession "ain't over 'til it's over." ...

The recession of 2007-2009 was by far the most savage economic decline over the time frame of these charts. Prior to the last recession, real GDP hit a new peak within a quarter or two of the official recession end. Per capita real GDP usually lagged a quarter before hitting its post-recession peak; the one exception was in 1990-1991, when the per capita variant required an extra three quarters to set a new peak. Employment has historically been slower to hit new highs following recessions.

The so-called double-dip recession of 1980-1982 had a non-recessionary interlude of four quarters. All three of our indicators hit new peaks within in the second quarter after the first of the double dips. Where are we today? We're now in the ninth quarter after the last recession. Real GDP is within shouting distance (0.5%) of a new peak. But real GDP per capita is less than halfway from its trough to a new peak, and, twenty-six months after the recession ended, nonfarm employment is only a bit over 20% of the way from its trough to a new peak.

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Economic Recovery

In the fourth quarter, economic output reached a $13.38 trillion seasonally adjusted annual rate, measured in 2005 dollars, inching 0.14% above the final quarter of 2007, when the recession began.

In the summer of 2009, the recession's official end, output plunged 4.14% below pre-crisis levels to a $12.81 trillion seasonally adjusted annual rate.

It took 12 quarters to recoup the losses and, on a per-capita basis, the economy is still not as large as it was before the recession took hold. Such a prolonged recovery is unusual: It took eight quarters to bounce back from the deep recession of the early 1970s.

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Economic Recovery

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Recession 12/07 to 06/09

It's official: The 2007-2009 recession, which wiped out 7.3 million jobs, cut 4.1% from economic output and cost Americans 21% of their net worth, marked the longest slump since the Great Depression...

The NBER acknowledged in its announcement that the end of the recession doesn't signify a healthy economy, only that the period of declining economic activity, measured by indicators such as economic output and incomes, has come to an end...

Meanwhile, real gross domestic product has made up only 2.9 percentage points of the 4.1% lost during the recession, while household net worth has recovered only 4 percentage points of the 21% lost...

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2007 Recession v. Other Recessions

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NBER: Recession Ended June 2009

The National Bureau of Economic Research, the arbiter of the start and end dates of a recession, determined that the recession that began in December 2007 ended in June 2009.

The business-cycle dating committee met by phone on Sunday and came to the determination. “In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month,” the committee said in a statement. The 2007-2009 recession is the longest in the post-WWII period. (Read related article.)

The decision by the NBER means that any future downturn in the economy would be considered a new recession and not a continuation of the recession that began in 2007.

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No Recovery

We’re not worried about the recovery. Because there is none.

None of the key components of recovery – housing, jobs, or consumer spending – suggest that the economy is returning to its pre-recession habits...

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US Employment Figures

After the Dow’s dazzling 77% rally from the lows of March 2009 to the recent high of 11,258 in March 2010, a little “give-back” was to be expected. But a lot of give-back was not expected…at least not by the legions of investors who believed that the Fed had vanquished the credit crisis for good, and had conjured a recovery out of thin air.

So now that this give-back has lasted an uncomfortably long period of time – and now that most economic data are coming in “weaker than expected,” the Dow’s nifty rally off the March 2009 lows begins to feel more like a deception than a validation...

“We may not have said it first,” we declared in the June 30 edition of The Daily Reckoning, “but we have said it repeatedly: The US economic recovery is a myth…a fairy tale.”...

Back in early March, however, most professional economic observer-prophets were still crowing about the end of the credit crisis and the resumption of economic growth. Today, the observe-prophets are trying to shake the fog out of their crystal balls. There is no recovery. Merely less catastrophe.

read the entire essay

Monthly Unemployment During the Recession

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July 2010:

For the current employment recession, employment peaked in December 2007, and this recession is by far the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only early '80s recession with a peak of 10.8 percent was worse).

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GDP 2nd Quarter 2010: 2.4%

In the first of three estimates for U.S. economic growth in the second quarter, the Commerce Department reported that real Gross Domestic Product slowed to an annualized rate of 2.4 percent, down from an upwardly revised rate of 3.7 percent in the first quarter, primarily due to a widening trade deficit and declining consumer spending.

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The Great Correction and Phony Recovery

Bill Bonner writes:

In 1999, the US stock market – led by the NASDAQ – clearly topped out. The bubble in the tech sector blew up. Equities started down...

It was time for a bear market/credit contraction. That is, it was time for a correction.

The correction began in January 2000. The NASDAQ collapsed. And in 2001, the economy entered a recession.

But this recession was phony. Consumer spending didn’t go down; it went up. Consumers kept borrowing money. It wasn’t correcting the debt problem, in other words, it was making it worse...

The correction of 2001 had been held up and made much worse by the feds’ efforts to stop it. At least $10 trillion of additional debt was added to the system in the decade of the ’00s...

Stocks boomed. Spending boomed. Real estate boomed. Finance in all its formed boomed.

Growth was positive. But it was phony. Because it was almost all based on debt. It was a debt-fueled bubble – particularly in real estate...

The bill came due in 2007. Subprime crashed. Then, the whole financial sector crashed, followed by the economy itself.

There are a number of ways to look at it, but we think it is most accurate to look at 2000 as the beginning of the present correction. That’s when stocks hit their peak in real terms. Since then, stocks have gone nowhere. And probably 90% of the “growth” since then was phony. Certainly, the average person did not get richer; he got poorer.

But having learned nothing in the ’00s, the feds set to work in ’08-’09 repeating and magnifying their mistakes. Instead of running $500 billion deficits, they ran deficits of $1.5 trillion. Instead of dropping rates below inflation, they took them down as far as they could go – to effectively zero. In addition, they nationalized whole industries, bailed out big businesses, and proceeded to add immense new financial obligations that nobody really understood.

You have to hand it to the Obama administration. We didn’t think anyone could be worse than Bill Clinton’s bunch…but then along came George W. Bush. In comparison, Clinton seemed like a great president. And then, just when we thought we’d seen the worst administration ever, here comes Barack Obama and his team. Obama has continued all of Bush’s programs (save torturing people). The war in Iraq continues. The war in Afghanistan continues. And the war on the correction continues. And Obama even added a new front – a health care initiative that is almost sure to be a financial and administrative disaster.

Not that we’re complaining. To the contrary, we find it all very entertaining. But we don’t think people are going to like the consequences.

The economy has been trying to correct since 1999. Every effort to stop it merely increases the size of the eventual correction. In round numbers, the US economy currently has debt equal to 350% of GDP. It averaged about half that much in the ’50-’80 period. If it were to go back to that level, it would have to eliminate about $25 trillion in debt. According to the last number we saw, the private sector was currently writing off, defaulting on, or paying down about $2 trillion per year. Not bad. But that would mean another 12 years of correction.

It would go a lot faster. But, remember, the government is helping.

read the entire essay

Length of Recessions

Double Dip Recession?

The closest we've seen to a "double dip" was in the early 1980s - and the NBER dated those as two separate recessions...

Based on these graphs and the NBER memos, it would seem pretty easy to date two recessions in the early '80s. However, if another recession starts this year, it will almost certainly be dated as a continuation of the "great recession" that started in 2007.

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Unemployment by Recessions

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Unemployment by Recession

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Four Large Bear Markets

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Cartoon: Recession and Unemployment

Budget Cuts