The economy is now beginning to recover from the worst of the recession. Industrial production is increasing. So too are sales, durable goods orders and housing sales (the latter admittedly in a far from definitive manner). Companies are beginning to rehire. But how strong is this recovery? Are we on the road to full employment or are we limping to some state of long-term stagnation? Or perhaps something in-between these extremes? In answering that question, I thought it would be useful to compare the changes in the unemployment rate during the last three severe recessions. Of course, the unemployment rate by itself doesn't give us the full picture but it is certainly an important measure.
We've experienced three recessions over the past 35 years where unemployment rose above 7.5% -- 1974-75, 1982-83, and 1990-92. The following statistics are from the Bureau of Labor Statistics.
74-75: Unemployment reached high in 5/75 (9%). A year later it was down 1.5%, two years later 2% (i.e. another 0.5%), three years later still down just 2%.
82-83: High reached in November 1982 (10.8%). A year later it was down 2.3%, two years later 3.6%, three years later 3.8%
90-92: High reached in June 1992 (7.8%). A year later it was down 0.8%, two years later 1.7%, three years 2.2%
Average: down one year later 1.5%, two years 2.4%, three years 2.7%
In this recession, the unemployment rate reached 10.2% in October of last year.
So:
If this is an average recovery, unemployment should be at 8.7% in October 2010, 7.8% in 10/11 and 7.5% in 10/12.
If this is an above-average recovery (82-83), unemployment should be at 7.9% in October, 6.6% in 10/11 and 6.4% in 10/12.
If this is a below-average recovery (90-92), unemployment should be at 9.4% in October, 8.5% in 10/11 and 8.3% in 10/12.
Today, unemployment is at 9.7%. It would seem, at this stage of the recovery, that we're looking at a below-average recovery. But it's really too soon to tell.
The strength of the recovery will obviously have critical bearing on the 2010 and 2012 elections. Given the short time until this November's election, it is unlikely that any pickup in the speed of the recovery will be noticed by the voters in time to do us much good. But looking ahead to 2012, our fortunes will be tied to the question of what sort of recovery we're experiencing. If unemployment has declined to 7.5% or less by November 2012, we should be looking at a happy (or, at least, relatively happy) Election Night. But if it's over 8% - well, let's just hope and pray it's not.