exercises in compound storytelling

Thursday, December 4, 2008

recession predictions

Graph of American Industrial Production Index ...Image via WikipediaFirst of all let's deal with a couple of simple questions: what's a recession and what's a depression?

A recession occurs when business activity declines. A depression occurs when business activity declines a lot.

Here is the first article I've seen that tells me part of what I want to know: it compares the current climate, measured mostly by the unemployment rate, to a handful of other recessions and to the Great Depression. The problem here is that rising unemployment is a consequence of a decline in economic activity, but it isn't a measure of economic activity itself. For that you need to look at Gross Domestic Product (GDP) or Gross National Product (GNP).

Given that the average length of the ten recessions since World War II has been 10.4 months, with a range of 6 months in the 1980 recession to 16 months in the 1981-82 one, the natural "placeholder" time frame for the end of this recession would appear to be the middle of 2009.
I think that means that the current recession is "long" and "shallow," because it has gone on more than eleven months (longer than average) and the unemployment rate is 6.5%.

I'm still looking for a resource that will identify all the recessions that have occurred since 1933 and describe then in terms of GNP, GDP, and unemployment rates.

This is still a lousy analysis, though, because it just looks at three numbers and it doesn't do anything resembling a principal factor analysis: it doesn't identify and measure the significant proximate causes of these recessions.

Right now I'd have to say that the current problems have been caused by a housing bubble, bad debts, a contraction in available commercial credit, a shortage of household savings, with an undercurrent of maybe a shift in demographics: Baby Boomers are getting older and starting to change their saving and spending habits. Oh and of course the Iraq War.

The Great Depression had widespread bankruptcies, runs on banks, natural disasters, and anarchy. I'm not sure what else. Time to do some reading, I suppose.

There's just no point in talking about a decline in unemployment and an increase in GDP unless and until we can identify the underlying causes of the current contraction.

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1 comment:

Mberenis said...

I'd like to Post a Comment The recession really isn't that bad if you know where to look. The bailout money is spilling over to us believe it or not. I've done research and found that there is more money than what you think...

Bailout Spillover