How Long Will the Recession Last?

Above is a chart from the Bureau of Labor Statistics. It shows total number of establishment jobs starting in 1945 -- essentially right after WWII. Note that we can break this graph down into a few different time periods. Let's look at each of these two eras with an eye to only one data point: job losses and recessions.

The big period of job losses on this chart occurred in 1957 - 1958 era. According to the NBER, there was an expansion from May '54 to August '57 and a recession from August '57 to April '58. The expansion created 4,163,000 jobs while the subsequent recession destroyed 2,216,000 jobs. In other words, the recession destroyed 53.23% of the jobs created during the expansion.

The sole reason for including the above graph which shows employment growth for the 1957 - 1970 period is this: notice there are no periods where job destruction was more than 53% in the above example.

Above is the remainder of the chart. Again, note the job destruction is nowhere near the 53% level mentioned above.

OK -- so where am I going with this? The best read on total establishment job creation during the latest expansion is 7.2 million jobs. So far the economy has lost 1,179,000 jobs or 16.66%. So let's assume we see a rate of job destruction on parallel with the worst rate in the last 60 years. That would bring total job destruction to 3.6 million.

Now -- remember that we've already lost 1.2 million jobs. This means we have an addition 2.4 million to go. At a 240,000/month job loss clip (the rate we saw last month) we've got 10 months of heavy job losses left. That places the end of the news of terrible job losses somewhere next summer. And that assumes we'll see a rate of job destruction on par with the worst rate of the last 60 years.

Let me add on final caveat: there are no guarantees in economics. Remember "home prices always go up?" Yeah, me too. The point is the above analysis could be off for a variety of reasons. All I'm trying to do is get a read of when the recession will be over.

Comments

[dobberdoss]

The reality is that this "recession will be over" WHEN the US starts paying its debts to the Fed Reserve, but what are we doing instead?

Borrowing MORE US dollars with interest owed on EVERY SINGLE ONE of them. Pointless!

[kstuff]

In Michigan, we've been experiencing a near economic depression since 2006. It's absolute hell. Hang in there!

[mcostello]

NO one reads a graph like Bonddad

[capitalismisntamoral]

The thing that struck me visually - just by looking at the shape of the curve -
is that the dips are getting consistently longer. It takes longer to regain the
jobs lost.

Take the most recent dip - 2003. It looks like it took almost 5 years until 2005 to
get back to the previous peak in employment at 2000. The previous dip was
about 3 years - 1990 to 1993, and all earlier dips are much shorter in time.

It is interesting to see this historical data, and I always appreciate Bondad's
charts because they often contain much important information.

However, I'm a little surprised at the low level of sophistication of the
conclusion/guesstimate. I guess it's all just speculation (not THAT kind)
anyway.

Great comments below by Olephart about the types/quality of jobs we have
now vs. in the 50s, i.e low-paying service jobs vs. good manufacturing
jobs.

A couple of oher factors that don't bode well for the US job market:
- employees are bad according to the stock market
- the US seems like it's in a lousy competitive position after outsourcing
so much manufacturing

[peterg76]

Thanks for explaining. Funny how no-one else evers wants to talk about reality when they go on about the economy.

[deminmo]

There is so much that could happen in the next 12 months which
would definately change any upward trend. I am not an economist
I just best guess it, but my gut says at least 18-20 months of really
nasty recession. That is without anything like a "9/11" happening.
People who really are trained don't see a depression happening
but it is really not possible, or just unlikely?

[rnadna]

Complicated stuff this economics. But its not evolution red in tooth and claw - you dont get anywhere fast this way.

Economics is a human endeavor, not nature. And like everything created by humans it has to be regulated. A free for all in the world of economics is a death nell for human existence.

If we were meant for the jungle we'd still be there.

As Smith originally stated, self interest (and greed), drives economic endeavor. But like all other human vices, it has to be regulated and controlled.

To believe that all individuals in the economic sphear will self-regulate themselves for the betterment of the whole is moonshine. The market has to be regulated. Absolute free markets is a disaster!

[capitalismisntamoral]

I don't buy that economics is outside of nature.

It may seem like it is because that's the assumptions in the models promulgated
by the business school-trained talking head 'economists' on the telly.

Supply seems like a natural limit, doesn't it?
The first concept you learn in econ is scarcity, right?

How about climate change? Mess with your environment enough and
it comes back to bite you.

Oops, my bad. I forgot (un)natural disasters are just another 'free market
opportunity'.

[mamacat]

If the American automobile industry collapses, and does not come back, then we will not see a recovery for much longer than 10 months.

[DAE]

The government needs to intervene to create a new industrial economy based on the need to reinvent the way we live on the planet. Once that's done the new industries can be spun off as public enterprises.

[Harbinger08]

The central difference that has to taken into account when comparing the current situation to those in the past is the permanent change in the future energy picture. All financial systems are ultimately ways of organizing the ownership of real tangible assets and goods. The world energy picture, which is based on petroleum, is right now at the point of change. Nothing can reverse this. Cheap energy is a thing of the past, all alternate sources of energy will be more expensive and insufficient, and it will critically affect all of the world's economies from this point forward.

[Harbinger08]

Another way to look at it is: Even during then Great Depression we still had 70 years of cheap, plentiful oil in the future, not to mention many other natural resources. Now we don't, and all the dollar bill printing and shuffling in the world won't change it.

[DFL]

We must leave iraq!

[DFL]

For purely financial reasons we must leave iraq!

[dobberdoss]

You should never of entered Iraq!, Next time you invade a innocent soveriegn country, GET YOUR FACTS STRAIGHT! It cost you all over a trillion dollars! for what?

[olephart]

I have several problems with this analogy. Basing assumptions on percentages can be misleading. The base in 1958 was a mere 53 million jobs and the 4.1 million jobs created were 7.7% of the total workforce. Today"s base is 138 million and the 7.7 million jobs created were 5.2% of the total workforce. Normalizing today"s figures would require factoring up today"s comparison by 33% or a job loss of 70% of those created.

Today"s employment picture is markedly different than 50 years ago. Then we were the World"s leading manufacturer/producer now we are the World"s leading servicer/consumer. Then the wages paid to average Americans yielded the World"s highest standard of living. Today the average wages are falling as is the standard of living. The jobs lost then cut production rapidly and supply quickly fell to meet lower demand. Equilibration was faster. Today jobs lost remove income/demand and supply remains constant. Then our purchasing was in strict balance with our incomes. Today our purchasing has been coupled to our debt. This is in the process of decoupling and our underlying incomes will not support our debt and purchases.

Today our financial markets are on life support, our Government is operating on borrowed money and our National Income is falling. Then our financial markets were well regulated and sound, our Government"s budget was sound and our National Income dwarfed every other Nation in the World.

[GreedyOldPsychopaths]

Well stated Olephart!

[olephart]

Continued:

The length of the recession will be the time it takes to return the economy to one that produces most of what we need, to one whose workers are paid a living wage and one where Government is neither a borrower nor lender. I might add that where Government is not the caretaker of its working age citizens or its for profit businesses.

[dobberdoss]

The reality is your the most indebt nation of the western world, your essentially the poorest of all the OECD nations. Your bankrupt & have been for quite some time. You are a failed capitalist nation. Creating more of your own money (US dollars) WONT get you out of this (which is essentially what your government is planning on doing. )Your currency will just become more worthless. You dont actually believe you have 800 billion in reserves do you? even in gold you only have around 250 billion.

[markinaz]

Everyone says that this "recession" can in no way turn into a depression because of all the banking safeguards and gov't safety nets blah blah blah... Well what good are safeguards and safety nets when your currency isn't worth anything? I fear we are rapidly approaching this scenario with our ridiculous amount of debt, spending out of control and the fact that a large chunk of the debt is owed to people who may not have our best interests at heart. I'm sure that most Americans in the 1920's were absolutely convinced that a Weimar Germany type of financial collapse could absolutely not be repeated on our shores. It took less than a decade for events to prove them wrong.

[dobberdoss]

Youve hit the nail right on the head my friend.