The Recession:
What Makes It So Unusual
Why It Seems to Be Ending 
by Richard Bayer, PhD

On February 28, 2002, John Wieting, Regional Commissioner for the Bureau of Labor Statistics, delivered intriguing and timely labor market information to a fascinated audience of the Employment Roundtable (www.5occ.com/roundtable). The Roundtable meets in Manhattan every six weeks to discuss the important employment issues of our day. Among the topics surveyed were (1) those characteristics that make this recession unusual and (2) why the recession seems to be ending. What follows is a summary of Wieting’s presentation and materials distributed to the Employment Roundtable.     

The Differences
Comparing this downturn with the prior nine post World War II recessions in terms of duration (about 10 months) and employment loss, it doesn’t appear to be very different. But there are still some very real differences:

1. The suddenness of the onset of this recession, and its intensification last fall with the tragedy of 9/11, are unusual.   Nearly half the 1.8 million private sector job loss in the downturn occurred from September through November of last year.  In fact, 828,000 private sector job losses in October and November represented the largest 2-month decline in any recession since the very severe and prolonged 1973-75 downturn more than a quarter century ago.

2. The employment impacts of this downturn have been far reaching in terms of industry and geography.
 a. The recession has extended to virtually every major sector of the economy, even to some of the services industries that have been growing much faster than the manufacturing industries.
 b. The recession has been unusually widespread geographically. As of December, 2001 employment levels had declined since March in all but 12 states. Unemployment rates have risen during the past year in all but five states.

3. Another difference is that consumer spending has not been impacted much as it usually is in most recessions.

This recession
has been different.

4. The housing market and, until recently, construction activity—both usually very vulnerable to economic downturns—have held up well. This may be a result of 11 interest rate cuts by the Federal Reserve Bank last year. Real interest rates (adjusted for inflation) are very low historically.

5. The productivity of American workers in the non-farm business sector has continued to rise during this downturn, increasing at a 2.3 percent annual rate.  In most prior recessions productivity was either basically flat or declined as output shrank as fast, or faster than, hours worked. 

6. In the past 50 years business investment spending has nearly always begun to decline after the economic peak, not before the peak, as was the case in this downturn.  

Light At The End Of The Tunnel
There are signs that the economy is already beginning to turn the corner.

1. Employment losses slowed substantially in December 2001 and further in January 2002.

2. New claims for unemployment insurance have recently been falling.

3. Massive liquidation of inventories over the last 11 months may shortly lead to a rise in industrial production and hiring to meet demand.

4. Small increases in factory overtime in recent months may be a harbinger of increased production and hiring.

5. The leading index of economic indicators has been moving up and registered its largest increase in nearly six years in December (1.3 percent).  The index continued to move up in January, rising for the fourth consecutive month.

6. There have also been recent increases in consumer confidence, with December showing the largest rise in nearly five years. Increases continued in January before falling back a bit in February.

7. Retail sales showed strong growth in January following sizeable increases in the fourth quarter of last year.

8. And finally, gross domestic product was up much more strongly in the fourth quarter of last year than originally estimated, increasing a revised 1.4 percent annual rate.

The robust demand for labor is likely to resume.

 So, there are a number of indicators that provide a basis for optimism on the near term prospects for recovery. As growth resumes, Wieting sees a return to the established long run trends. It is expected that most economic growth will continue to come in the services sector; there will be a robust demand for labor; and the labor force will become more diverse in terms of ethnicity and gender.