The macroeconomic definition of a recession is two quarters of negative GDP, which has a lag based on reporting. An alternative, less accepted definition of recession is a downward trend in the rate of actual GDP growth as promoted by the business-cycle dating committee of the National Bureau of Economic Research (NBER). The NBER defines a recession more ambiguously as “a significant decline in economic activity spread across the economy, lasting more than a few months.” Currently we are in a recession based on Q3’08 results and Q’408 estimates. The United States currently meets both the technical definition and the NBER definition of recession.
And in fact a depression is an economic downturn where the GDP is down more than 10% YOY (Year/Year). There was actually a second and short depression in May 1937-June 1938 where the GDP declined by 18.2%.
1. 1930 -8.6%
2. 1931 -6.4%
3. 1932 -13%
4. 1933 -1.3%
In 2007 Real GDP was 2%.
Q3’08 GDP = -0.5% (annualized) revised from -0.3
Q4’08 GDP (Est) = -4.3% (annualized) Bloomberg economist survey
Also note the quarter ends before year end, it looks like a month lag, which probably means we went negative in May sometime.
The December numbers will be announced January 30th. At this point they should have an idea of what the January numbers may look like, which people will speculate about.
The economists are probably close and the final numbers will be announced January 30th. Assuming the number came in at -5% if the January numbers are then estimated to increase another few percent, then we could annualized maybe even be 6-7% announced in Feb.
Here are the worst Years then Quarters we have had historically. Note quarter tracking starts 1947 for the Bureau of Economic Analysis (BEA).
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Annual |
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Quarterly |
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(Seasonally adjusted annual rates) |
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Year |
GDP percent change based on current dollars |
GDP percent change based on chained 2000 dollars |
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Year |
GDP percent change based on current dollars |
GDP percent change based on chained 2000 dollars |
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1932 |
-23.2 |
-13.0 |
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1958q1 |
-6.4 |
-10.4 |
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1946 |
-0.4 |
-11.0 |
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1980q2 |
0.6 |
-7.8 |
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1930 |
-12.0 |
-8.6 |
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1982q1 |
-1.2 |
-6.4 |
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1931 |
-16.1 |
-6.4 |
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1953q4 |
-5.3 |
-6.2 |
Just how bad are the above numbers? Well, you would have to look at the YOY (Year/Year) and HOH (Half/Half) to compare.
Basically in the 80′s you had negative growth, then growth, and then saw that growth wiped out and then got back to where you (normalized) in Q1’83. So the 80s were flatter then they appear. Remember stop and go economics?
Since the last depression, the worst half year at any point on a annualized basis we saw -7.49% in 1958 followed by -5.73% 1982 Q1. Even more interesting, recently the worst full year was -3.05% 1958 Q1 followed by -2.71% 1982 Q3.
We are already in two quarters of negative growth, but Q3 was not that weak. We would have to go a full quarter at roughly -7.06% to be as bad as the 80′s (to average out a -5.7% half year). It’s not actually that hard to do if we hit 6-7% monthly annualized numbers when January’s number come out. We just have to keep at the same pace for two more months. We would have to have two more terrible quarters to match the worst half year which was 7.49% in 1958. The bad news is we have a lot of other indirect negative indicators, such as widespread sector shock. So in my opinion this economic crisis is very serious and we still have a ways to go to find out how serious. Policy will be a very important determining factor. If things worsen at the Q4 rate for 6 more months we will hit 1958 levels. It’s hard to say and I think the January estimates will be a huge indicator. We already know December will be bad, as reflected in the economists’ projections.
In conclusion if the January numbers (estimates) are significantly worse than the December numbers, put your seat-belts on and if the January numbers (estimates) are similar to December numbers, than the situation looks similar to the 80s, but with a more consistent decline (rather than up and down). Look for January estimates in 2-3 weeks, and all eyes on Obama for policy.
~Katherine A. McDonough
