Comparing this recession with the past: moving mildly

By , Leonard Lempert is director of Statistical Indicator Associates in North Egremont, Mass.

If the United States is to know where the economy has been, where it is, and where it is going, the current recession will have to be monitored with a full appreciation of economic terms and statistics.

Descriptions such as a ''deepening recession'' or observations such as ''major retailers reported the worst monthly sales of the year'' have to be scrutinized carefully to avoid being misled as to the severity of what is happening in the economy. Thus far, the current recession, on the whole, is proceeding along lines that place it among the mildest of the eight post-World War II recessions.

A recession is not a level of economic activity. A recession is first and foremost the direction of economic activity, an economy that is moving downward.

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Second, a recession occurs over a protracted period of time, six months or longer.

Third, the magnitude of the decreases must, for want of a precise quantitative definition, approximate the decreases in previous recessions.

A ''deepening'' recession is redundant. A recession is a ''deepening'' of weakness in the economy. A deepening deepening of weakness in the economy could mean the rate of decline is accelerating, but the usual pronouncement of a deepening recession simply means things are getting worse, or nothing more or less than that the economy is in a recession. A ''deepening'' recession provides no insight whatever into the character of the recession.

The real character of a current recession is expressed best in one way. That is a comparison of the path of the current recession to the paths of previous ones.

The reporting of the worst monthly retail sales of the year not only fails to relate to the performance of sales in the early months of other recessions, but is in itself an observation based on a faulty statistical procedure.

The reporting of sales being at their worst is based on percentage comparisons with sales in the corresponding calendar month a year earlier. Such a comparison of percentage comparisons is a tradition carried on by generations of US businessmen. Unfortunately, it provides no information as to the level of current sales compared with the levels of sales in recent months.

In contrast to this faulty statistical comparison, the fact is that October retail sales totaled $87.18 billion and exceeded sales in four of the preceding nine 1981 months. It was far from being the worst month of the year.

Furthermore, the fact is that retail sales are holding up much better than they did in the comparable early months of the 1981 recession.

Retail sales data from January 1980, after which a recession began, were as follows (in billions of dollars).

Jan. Feb. March April Jan.-April

Retail sales from July 1981, after which a recession began, have been as follows (in billions of dollars).

July Aug. Sept. Oct. July-Oct.

From this simple comparison, you can see that retail sales have performed much better thus far in the current recession than in the 1980 downturn.

By raising January 1980 sales to the level of July 1981 sales and making February, March, and April 1980 proportional to the new level for January 1980, we obtain a direct comparison that clearly shows the superior 1981 performance in the first three months of recession.

Peak Plus Plus Plus 1 mos. 2 mos. 3 mos. Jan. 1980 $87.35 $86.62 $85.20 $83.88 July 1981 $87.35 $88.63 $88.54 $87.18

Thus far, and it is necessary to stress thus far, because the future may differ, other major economic indicators such as industrial production, deflated personal income, the unemployment rate, nonagricultural employment, etc., are also experiencing relatively mild weakness compared with their weaknesses in the early months of the seven previous recessions since World War II.

After the first three months of those seven recessions, for example, the proportional weakness in the unemployment rate in five of seven of them was greater than it is today in rising from 7.0 percent to 8.0 percent.

One of the more fascinating comparisons with earlier recessions is that involving the prime interest rate. While recession weaknesses in the economy as a whole are relatively mild today, the proportional decline in the prime interest rate this time is greater than in any of the seven preceding recessions , and much greater than in six of those seven.

Next time you read about the recession growing sharper, or becoming worse, insist on being shown a comparison with the course of earlier recessions. Without such a comparison, it is impossible to assess fully and competently the severity of today's recession.

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