Posts Tagged ‘miscellaneous’

How Long Will The Recession Last?

December 3, 2008

(And why this doesn’t matter for President-Elect Obama)

 

The best place to start when answering this question is the past. Once we can see what’s happened before, we can begin to assess what might happen next.

 

The following statistics come from the US National Bureau of Economic Research.

 

America’s Business Cycle Dates. Duration in Months

 

Peak                Trough           Peak to          Trough           Trough            Peak

                                                Trough           to Peak           to Trough       to Peak

 

Feb 1945         Oct 1945         8                      80                    88                    93

Nov 1948        Oct 1949         11                    37                    48                    45

Jul 1953           May 1954       10                    45                    55                    56

Aug 1957        April 1958       8                     39                    47                    49

April 1960       Feb 1961        10                    24                    34                    32

Dec 1969         Nov 1970       11                   106                  117                  116

Nov 1973        Mar 1975        16                    36                    52                    47

Jan 1980          Jul 1980           6                     58                    64                    74

Jul 1981           Nov 1982       16                    12                    28                    18

Jul 1990           Mar 1991        8                     92                   100                  108

Mar 2001         Nov 2001        8                    120                  128                  128

 

The Peaks are the point at which America’s economy is at its strongest and the Troughs are when its at its weakest, within the cycle.

 

As you can see quite clearly, America, like most countries, spends much more time growing (Trough to Peak) than shrinking (Peak to Trough). However, those periods of expansion and contraction vary considerably from business cycle to business cycle.

 

Americas ten year expansion from March 1991 to March 2001 was the longest for at least 150 years – the length of time the National Bureau has data for.

 

So, to answer the original question, how long is this recession likely to last? The maximum length of a Peak to Trough in the last 60 years has been 16 months. If we hope that this recession is no worse than that, and there seems to be no evidence that specific factors are going to cause an abnormally long recession (indeed with globalisation, the World’s economy is more diversified than ever and so should be more robust), and given that the National Bureau have decided that the Peak of the Cycle was December 2007, then the Trough should be around March 2009.

 

Although the US economy will start growing from that point, people probably won’t start feeling the benefit for around another year as the slack (that has developed in the recession) gets taken out of the economy. This slack is measured in unemployed people and companies producing less than their capacity.

 

Whatever does happen, it won’t matter for Obama – the recession can be blamed on President Bush and by the time his re-election comes around in 4 years the economy will be growing again, probably strongly, making him a shoe-in. The only thing that could stop this happening is if he manages to become generally unpopular in the meantime for unforeseen policy mistakes.

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