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Not All Recessions Are Alike
The economic dip of 2001 was a lot different from its predecessor.


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David Malpass

In length, the 2001 recession (dated April 2001 to November 2001) was relatively short, a lot like the 1990-1991 recession (dated August 1990 to March 1991). Based on official recession-dating by the National Bureau of Economic Research, each was eight months in duration, compared with the 11.8 month average for the five previous recessions.

In many ways, however, the two most recent recessions were quite different.

Leading into the 2001 recession, the dollar was very strong. Commodity prices had suffered a multi- year deflation, and CPI inflation was falling to very low levels. In sharp contrast, the 1990-91 recession was preceded by a relatively weak dollar and rising inflation. In terms of government policies, the two recessions were almost opposites. The government cut tax rates during and following the 2001 recession, whereas it raised rates substantially in 1990. And the Federal Reserve began cutting the fed funds interest rate in January 2001, months before the official beginning of the 2001 recession. In contrast, it was reluctant, and hence late, to ease in 1990-91. The widely used rule of thumb is that two consecutive quarters of declining real gross domestic product may indicate a recession. So using GDP as a guide, how do the two recessions stack up? The comparison is interesting. Real GDP fell in each of the first three quarters of 2001 and in the three quarters surrounding the 1990-91 recession. This fulfills the two-consecutive-quarters rule. From its peak in the first quarter of 2001, GDP fell 0.6 percent through the third-quarter GDP trough. The 1990-91 recession was also modest from a GDP perspective, with GDP falling 1.3 percent from peak to trough. However, for quarterly data, the NBER dates the recession as Q2 2001 to Q4 2001. Using that definition, GDP actually rose 0.2 percent in the 2001 recession, illustrating the shallowness of this economic dip. Here are some other key peak-to-trough economic statistics for the two recessions (from NBER):
Recession Dating
1990-91: August 1990 to March 1991 (peak was July 1990) 2001: April to November (peak was March 2001) Real Personal Consumption
1990-91: -0.4 percent 2001: 2.1 percent Real Disposable Income
1990-91: -0.8 percent 2001: 0.1 percent Unemployment Rate
1990-91: Peak = 5.5 percent Trough = 6.8 percent 2001: Peak = 4.2 percent Trough = 5.6 percent Nonfarm Payroll Employment
1990-91: -1.23 million (-1.1 percent) 2001: -1.63 million (-1.2 percent) Real Fixed Nonresidential Investment
1990-91: -4.5 percent 2001: -8.0 percent Real Residential Investment
1990-91 -13.1 percent 2001: -0.9 percent Contribution of Inventories to Real GDP Growth
1990-91: -0.6 percentage point 2001: -0.8 percentage point Change in S&P 500 Stock Market Index
1990-91: +8.1 percent 2001: -8.0 percent Change in Federal Funds Rate
1990-1992: -2.0 percent 2001: -2.5 percent
Weakness in business-investment spending was clearly the prominent factor behind the 2001 recession, while weak consumption spending and residential investment played their usual important roles in the 1990-91 recession. The weakness in job growth was similar in the two recessions. However, this weakness has extended far past the end of the 2001 recession, in contrast to the 1990-91 episode. The trough in nonfarm payroll employment was May 1991, just two months after the recession trough. In contrast, nonfarm payrolls have continued to decline through the June 2003 figure. But the rapid job growth and very low 3.8 percent unemployment rate achieved prior to the 2001 recession explain the sluggishness in employment in the current post-recession period. Not all recessions are alike. And yet, they all have their political ramifications — which brings us to a final interesting difference between the 2001 and 1990-91 economic periods: their dating relative to presidential elections. The 2001 recession began just 2 months after the presidential term began, and it ended 36 months before the next presidential election. In contrast, the 1990-91 recession occurred in the second half of the presidential term and ended 20 months before the November 1992 election. In fact, the NBER did not announce its end date until December 22, 1992 — over a month after the presidential election. Consequently, the 2001 recession should be a less important factor in the 2004 election than the 1990-91 recession was in 1992.


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