Pethokoukis

Welcome to the Recovery: 2012 may be the worst non-recession, non-depression year in the history of the United States

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There have been worse years for the American economy than this one, of course. For example: 2009, 1982, the entire 1930s.

But those years occurred during official recessions or the Great Depression. Right now we are supposed to be in the third year of a recovery.

But look how 2012 is shaping up: After a weak 2011 when GDP growth was just 1.8%, this year’s growth rate looks even weaker. Today the Commerce Department revised second-quarter GDP growth to just 1.3% (1.25%, actually). As a result, many banks are now looking for growth of around 1.5% for the rest of the year — with plenty of downside risk. Full year GDP might be less than 1.5%, putting the economy at heightened risk of falling back into recession.

And at the same time, unemployment remains stuck above 8%, and the labor force remains so shrunken that JPMorgan recently said “that there has been essentially no progress in repairing the labor market after the recent downturn.”

Given anemic growth and a dead-in-the-water labor market, could it be that this is the worst non-recession, non-depression year in modern U.S. economic history? Maybe even since the birth of the Republic?

Quite possibly. Here is my evidence:

– Commerce Department data goes back to 1930. Since then, there has been no single year with GDP growth as weak as 2012 that wasn’t in recession.

– The United States has not had this sustained level of 8%-plus unemployment since the Great Depression.

So based on those two data points, this is certainly the weakest non-recession, non-depression year since 1930, with the only year close being 2011!.

But what about earlier than that? Well, the data gets a little tricky. But here is what I have determined.

– 8% or higher unemployment is very rare before 1930 during times of generalized growth. For instance, from 1869 to 1899, there was only one year where unemployment averaged 8%. And there is also evidence that unemployment below 5% was typical earlier in America’s history. Also keep in mind that labor force participation from 1850- 1920 among males was around 90%. Today, labor force participation is around 64%. So it is rare that so many people who want jobs are idle, as is the case today.

–  As far as GDP growth goes, let’s break it down by decades. From 1790-1810, U.S. economic growth averaged about 5% a year. From then to the Civil War, it averaged around 4%. Same for the post-Civil War era through 1900. Then until 1930, growth averaged between 2% to 3%.

My conclusion: If you combine high unemployment, low labor force participation, and slow GDP growth, 2012 might well be the worst non-recession, non-depression year in the history of the United States. The only other challenger is 2011. Or maybe next year …

 

 

 

 

7 thoughts on “Welcome to the Recovery: 2012 may be the worst non-recession, non-depression year in the history of the United States

  1. Either you mean for “non-depression” to exclude the recovery years of 1934-37, or else your undisclosed method of combining unemployment rate, labor force participation, and GDP growth makes 2012 worse then 1934-37, despite the persistence of unemployment rates over 15 percent for most of that time.

    Maybe you could elaborate. Otherwise, it appears you have strained to force 2012 to stand as an extreme in a contrived set of years, not justifying the sweeping language “worst in the history of the United States”.

  2. Commerce Department data goes back to 1930. Since then, there has been no single year with GDP growth as weak as 2012 that wasn’t in recession.

    Well, I didn’t know that 2012 only had half a year. :-) If you want to compare to prior years you should be using 12 month (4 quarters) moving averages, adjusted by population growth.

    On that basis , year over year real GDP per capita of 1.41% is higher than the growth rate at the beginning of 7 of the last 8 recessions since 1960.

  3. So it is rare that so many people who want jobs are idle, as is the case today.

    Huh. It’s what laissez-faire capitalism is all about. The size of the slice of national income incrementally flows to capital, not labor over time. The secular decline in the labor share of national income for the last generation is unmistakeable. Since the advent of trickle-down in 1980, household consumption grew relative to GDP due to the secular decline in the savings rate and the secular rise in the leverage rate. Those trends have recently reversed depressing GDP relative to the past.

    As for the labor force participation rate, men have been lazy for 2 generations; teenagers have been lazy for half a generation. The male decline was masked by a rising female rate which peaked at the turn of the century.

    • Gee, now if we could only find some Laissez-Faire capitalism anywhere on Earth we could do a correlation or otherwise test your hypothesis.

      Alas, in the case of the US, we are dealing with an economy that has been increasingly collectivist since President Wilson. Some industries such as banking and medicine are nearly 100% regulated

  4. President Obama promised to fundamentally change America; he needs 4 more years to collapse the economy and assume complete control of Americans. If you want the USA to be Greece vote for him.

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