U.S. Recessions: 1900 - 2008

Below we highlight the average duration of the US economic recessions since 1900.  Given the recent string of weak economic reports and the freeze up in the credit markets, the question regarding the current period is no longer if we are in a recession, but when did it start.  Based on the recessions shown in the chart, the average length of US recessions is 14.4 months. Using the assumption that the recession began at the start of 2008 (using Industrial Production and Employment statistics), if the current period ends up as just an average contraction, then we could expect the economy to bottom some time next spring. 

As shown in the chart, there is a clear dichotomy in recessions prior to WWII (red) and recessions after WWII (blue). Pre WWII, the average recession lasted 19.1 months. Since then, though, the average duration has been nearly cut in half to 10.2 months. While the reason for the shorter duration is up for debate, we would argue that faster information flow has allowed companies to quickly adjust activity in order to compensate for shocks to the upside or the downside.

click to enlarge

Comments

[bearfund:]

Nope. Cheap money has simply "stored up" recessionary pressures. That trend line is about to be blasted to hell and the average recession length will revert to the mean.

2008 Oct 24 02:30 AM

[OldLimey:]

I agree with bearfund.

As an aside, anyone else notice how after denying a recession is on the cards right up to the bitter end, as soon as the admission is finally made the bulls start looking for data points evidencing the earliest onset possible so they can get the 'markets will soon be discounting recovery' story up and running?

2008 Oct 24 02:06 PM

[carey_jim:]

Before World War I, the average number of soldiers killed in a war was about 75,000 per war year with a pretty large standard deviation and a lot of controversy.

However, forty million died during the four years of World War I and to add insult to injury, nature killed fifty million more in the flu epidemic of 1917-18.

It isn't too hard to lie with statistics and telling the truth is close to impossible.

For instance, in the American South it has long been recognized that when the tar in the road softens, babies get more diaper rash but they haven't concluded (yet) that soft tar causes baby rash.

Tread cautiously with charts and statistics.

2008 Oct 24 03:23 PM

[Badgolfer:]

Could you comment on the increase in government transfer payments post WWII and their contribution to lowering the length of recessions ?

2008 Oct 24 06:12 PM

[tomyris:]

Carey-_Jim rightly advises us to tread cautiously with charts and statstics , however as one who used to own a betting franchise in Europe let me say that people are very influenced by the written ( and spoken ) word and I believe they would do better to tread cautiously when listening to the rabid media and put their faith in the unbiased reality of what has gone before as represented by long term charts . Either you beleive in capitalism and man's capability to reason and resolve or you despair. Reduce margin and ride it out .

2008 Oct 26 03:38 AM

[PokerDonkey:]

21 data points? Wow, I'm betting the farm on the conclusions I can draw from that.

2008 Nov 04 10:47 AM