Recession By the Charts

Tuesday, June 23, 2009

Following charts borrowed from the Council on Foreign Relations - Center for Geoeconomic Studies

The first area of interest in comparing U.S. economic contractions is the performance of the equity markets. As seen in the graph below, this recession's fall in equity prices has been much more dramatic than average recessions but has yet to compare to the Great Depression's decline. Starting at time zero, US equity markets have declined much greater than average pre and postwar recessions but has yet to experience the extended duration of depressed prices seen throughout the Great Depression. Time will tell.

Unemployment comparisons are also often made but the current situation has yet to hit tough times relative to the past. While the current recession's increase in unemployment has been worse than the average postwar recession, it has yet to hit prewar recession averages or the Great Depression. In terms of unemployment, Great Depression equivalency statements are unfounded for now.

Real home prices paint a rather disturbing picture. While prices had seen a much greater rise in the preceding months relative to the past, the decline has been quite severe. Every prior contraction saw prices fall less than 10% while the current recession's price drop tops 20% currently. Home prices appear to be the clear underlying cause of this recession and the stabilization of prices is the only path to recovery.

The final area of interest is the US government response to the fallout. The government, believing it has learned from past mistakes, has racked up deficits attempting to put a floor in the economic contraction. The Obama administration seems determined to spend our way out of this mess. Perhaps this is a better response relative to the Great Depression given its timeliness once the recession began. Yet, it leaves one wondering if the government may have used up its ammo too soon should the recession continue and what will be the lasting effects in the coming decades as the US attempts to pay down its debts.


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