Tuesday, March 3, 2009

Rebound on the Way... I Mean It... Any Year Now... And It Will Be HUGE

The Council of Economic Advistors via Whitehouse.gov responds to criticism of their "rosy" projections in the Administration's budget for economic growth:
But, a key fact is that recessions are followed by rebounds. Indeed, if periods of lower-than-normal growth were not followed by periods of higher-than-normal growth, the unemployment rate would never return to normal.

Another key fact is that deeper recessions are typically followed by more rapid growth. Table 2 shows the peak-to-trough decline in real GDP in each of the last 10 recessions, along with the average growth rate (at annual rates) in the 8 quarters following each recession.


Interesting, but...
  • This is like saying "if you survive cancer, you will live a great life"
  • How many of these recessions involve systemic financial meltdowns... none you say?
  • After a recession, the economy is smaller... so OF COURSE the economy will bounce back and appear to grow at a higher rate as it trends back to norm (i.e. if the economy goes down 50%, then rallies 100% it is only back to where it started... extreme, but you get the point)
Update: As reader AJK points out:
I'm assuming there's no +8qtrs for the recession ended in 7/80 because it was only 4 quarters until the next recession. Correct?
You are correct: BEA
at

4 comments:

  1. UnknownMarch 3, 2009 at 2:55 PM

    "How many of these recessions involve systemic financial meltdowns... none you say?"

    I love that.

    You should do a rebuttal graph with the Great Depression, Japan's Lost Decade, Weimar Germany, and the Soviet Collapse as a comparator.

    ReplyDelete
  2. The guy that allocates assetsMarch 3, 2009 at 5:46 PM

    Great post. I'm assuming there's no +8qtrs for the recession ended in 7/80 because it was only 4 quarters until the next recession. Correct?

    ReplyDelete
  3. JakeMarch 3, 2009 at 6:55 PM

    AJK- nice catch... here's the data

    http://bea.gov/national/nipaweb/TableView.asp?SelectedTable=3&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Qtr&FirstYear=1979&LastYear=1981&3Place=N&Update=Update&JavaBox=no#Mid

    ReplyDelete
  4. Terry MaynardMarch 4, 2009 at 7:56 AM

    A better pre-/post- GDP decline comparison would be how long it took to reach the previous GDP level in real terms (i.e.--we're back where we started).

    Of course, growth will always be quicker from a lower base, but it takes considerably more growth to make the difference in value. (EG--If the economy has declined by 10%; it will take 11% growth to break even.)

    ReplyDelete