Recession’s silver lining? History suggest next 12 months could see strong growth.
Well, there has been an awful lot of hype comparing the current recession to the great depression of the 1930s. People are starting to call this the “Great Recession”.
In some ways, they’re right. The chart below shows every recession in the US since 1948. The vertical axis is the maximum unemployment rate reached in the recession, the horizontal axis is the amount of reduction in real GDP (top to bottom on quarterly basis), and the size of the bubble represents the duration (bigger means longer).
In terms of GDP decline, the US is suffering the worst recession since the 1930s. Unemployment is also approaching the high of 1982. Unemployment may go up for another month, but in my view is more likely to trend down before Christmas. Still, by any measure it has been a very tough time.
If we add the downturn of 1929-33, it really puts that period into perspective for those of us too young to remember it.
However, I was interested in what typically happens after a recession. Below is similar data, except this time the vertical axis is economic growth in the 12 months post recession.
Now, I haven’t run a statistical analysis of this data, but it looks like a reasonably strong correlation between the severity of the contraction and the strength over the next twelve months.
If the recession technically ended some time last quarter (and it may be some months or years before the NBER’s Business Cycle Dating Committee determines that), and if the same pattern holds true, then the US can expect some quite strong economic growth in 2010.
