Let's Clarify "The Worst Economy Since...." Debate

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We still hear daily commentary about "the worst economy since the Great Depression." The chart above shows the monthly unemployment rate in the U.S. back to January of 1930 and eight different peaks in the jobless rate. Before we start make alarming and fantastic comparisons of today's economic conditions to the 1930s, we should probably start by comparing today's economy to more recent economic contractions, and more recent peaks in the jobless rate.

The current October jobless rate of 6.5% will likely rise further, but according to the most recent October WSJ survey of 56 forecasters, the consensus forecast for the unemployment rate in December 2009 is 6.8%. So let's assume that the forecasters are too optimistic and the jobless rate goes to 7% by the end of next year, how bad would that be?

It still would not be as serious as the 7.8% peak in the jobless rate in 1992, the 10.8% peak in 1982-83, or the 9% peak in 1975. So before we make exaggerated comparisons to the 1930s when the unemployment rate peaked at 25.6%, maybe we should more realistically be making comparisons to the more recent double-digit jobless rates of the 1980s and the 7.8% rate in 1992. And we're not even close to those rates yet.

Proposal: Once we have the double-digit jobless jobless rates of the 1980s, which seems very, very unlikely, then we can start making comparisons to the 1930s. Until then, let's use the 1970s, 1980s or the 1990s as the benchmark comparison decade for the "the worst economy since...."

Comments

[thedozer:]

Mark, forget the unemployment numbers....

in 1932, civilians were CREATING their own currencies!!! that may be a better benchmark my man!


with that being said... I honestly see Barack O'Roosevelt as having the potential to lead us there, I have faith.

save this post for March... say.. 2011

2008 Nov 12 02:56 PM

[surferdude808:]

this time series is not valid as the methodologies for computing the UER have changed several times over the past 80 years. some observers trying to compare the UER historically say it is better to use the U-6 series instead of the U-3 that is plotted. currently, the monthly U-6 is over 11%, the highest it has been since 1982. the UER like inflation has undergone many changes because of politics. while some are fixated on the level of UE, more importantly however, is the change in the UER from the trough. the change at the margin is very large and is set to increase. this sea change will have a profund impact on consumer spending behavior. fasten your seatbelt as it is going to be a very bumpy ride.

2008 Nov 12 04:44 PM

[mbborak:]

Mark, it would have been beneficial to see a chart comparing the forecasts of economists with the actual rise in unemployment for each of the last eight peaks. If there is one consistency in the last 12 months, it has been that economic forecasts have been over-optimistic and slow to revise downward. Keep in mind that throughout this past summer the majority of economists surveyed predicted the US would avoid a recession (2Q of negative growth).

Wachovia just came out today with a forecast of 9% unemployment by late next year. Not that they're correct, but suffice it to say that these forecasts will likely follow a downward trend for the forseeable future.

2008 Nov 12 04:48 PM

[dlaw:]

Unemployment will be in double digits before the end of 2009, I think, so this is just more (of the more and more and more and more and more) denial and silliness of people who can't let go of their precious assumptions.

The author is in danger of becoming a contrary indicator.

2008 Nov 12 04:48 PM

[Cuthbert:]

dlaw, the author is not in denial, he is just stating facts. Another point worth remembering, in the 1920's most families were one wage earner units so if "dad" lost his job all the family income was gone. Many families now have two bread winners. A statistic that would be interesting: what percentage of families are without income? Bet the 20's pain trounces anything we are seeing now.
Nevertheless, I understand your frustration with folks finding silver linings during a hard time. If you have lost your job, your unemployment rate is 100% and it's hard. Been there.

2008 Nov 12 05:55 PM

[Steven Hansen:]

i have not heard one reputable analyst or economist predict great depression type unemployment. why? - because america has completely shifted from an agricultural society to an industrial society to a service society,

in the 1930's people could pick up odd jobs (this did not count as employed), in 2008 you pick up part-time employment which is counted as employed). it is like comparing an apple to an orange.

then why do people keep saying "worst crisis since......". because it is bad, and may be a bad or worst than the 1930's. but nobody knows how bad it will be. currently all leading indicators are negative and continuing to fall. there really is no positive economic fundamentals except the price of commodities. the economy is deflating - an economists nightmare. credit markets remain frozen despite massive government intervention. the consumer sector may have had $20 trillion ripped from its worth (growing daily). we have a global recession.

and the only crisis with all these elements was in the 1930's. so that, my friends is why this is probably the worst economic crisis in 100 years. we cannot define it in foresight. if you choose to wait unit the government issued unemployment numbers reach double digits to start preparing yourself for the future - too bad.

you cannot put a positive spin on turds in a punch bowl.

2008 Nov 12 07:32 PM

[tedstr:]

I've heard no one talk about the biggest single change between now and the '80's or '29......two income households. Over 65% of married women in the US now work. In the '50s it was less than 25%. I would guess in '29 in was ~10%. We also have unemployment insurance.

The impact of even 11% unemployment is nothing like what it was in '29 or even '82.

2008 Nov 13 09:10 AM

[too old:]

Barack Obama made a Joe Biden type statement in his acceptance speech on 11-4-08 something to the effect that we have the worst economy in a century. I wanted to shout at him that he should restudy the 30s which are within the last century. I have yet to see anyone recognize his misspeak.

2008 Nov 13 09:58 AM

[Paul Killinger:]

It's time to suck it down, guys. The economy is what it is. Get over it. Don't get stuck in bemoaning your plight. Do something about it. And, for Chrissake, STOP listening to the government and the news media telling you the world is coming to an end and they know how to fix it. They're only feathering their own nests at your expense. Get it?

2008 Nov 13 10:28 AM

[Paul Killinger:]

And you Detroiters are at the front of the line on this. Do you really believe MORE government intervention is going to fix your businesses? They're the ones who got you into this mess in the first place.

Tom Friedman and your Congressional delegation couldn't fix a flat tire on the highway, much less your broken business plans. It's time you WOKE UP and TOOK RESPONSIBILITY for your situation YOURSELVES.

2008 Nov 13 10:33 AM

[Paul Killinger:]

You can either fly or die, guys. It's up to YOU!!!

2008 Nov 13 10:35 AM

[Paul Killinger:]

Nothing's going to get better until we take PERSONAL RESPONSIBILITY for our OWN problems. YOU elected the idiots who represent you. YOU need to shape them up or get rid of them. No one can do this for you.

Look at it this way. At least we're lucky enough to be living in a place where we still can change our own fortunes. Let me suggest you start working on YOURS while you still can. And, please, stop CRYING about it!

2008 Nov 13 10:46 AM

[carey_jim:]

User 296970 and The hand got it right. The falling unemployment numbers are misleading because they were calculated differently during different decades. Using the same metric you started with would give a much higher unemployment trend line.

Wages have fallen for the working class and the lower middle class during this period but the effect on families has been masked by the rise of two income families as tedstr and Cuthbert pointed out.

Two income families will suffer less if only one member of the family is unemployed but the reason two people are working in a family is usually because they need to. One income is not enough to lift them out of poverty.

So if one member of a family becomes unemployed the family will often be pushed to the level of "working poor" which is no fun.

2008 Nov 13 11:34 AM

[freddie:]

One fact makes it the "worst in 100 years." Nations did not go bankrupt in the Great Depression. Why do I get the feeling that we are at the beginning and not the "bottom" or "near bottom."

And stagflation appears to be gaining momentum. I base this on empirical observation. I thought this would be a good time to remodel a house for rental. We are now completing the kitchen. Even high end sellers of kitchen equipment will meet Home Depot's prices. Yes, Home Depot now carries high end kitchen products. However, when I selected some high end stainless sinks, faucets, etc. after visiting several showrooms, when i returned just a week later to make the purchase, the price had gone up 8%! The explanation - supply is down - hard to get!

And I decided to do deferred maintenance on my boat with a Volvo Penta diesel engine. Marine mechanics are now asking $90 to $100 an hour, and Volvo Penta just increased parts prices another 10%. Not scientific you say, but isn't this how we knew all along in our everyday lives that the Govt was BSing inflation rates? Look out for anything made of metals. You ain't seen nothin yet.

2008 Nov 13 11:43 AM

[silverslut:]

When an expert screws up, the result is an expert screw up. Have any of the mainstream experts any clue? Greenspan, Bernacke, Paulson? On top of that, all the data that they rely on has been drifting farther from the truth with every year. The unemployment data, if calculated like it was in 1970, would be over 10%. The GNP would be -4%. Who can make informed decisions using lies? Worst yet, is that the liars lost track of their lies and started believing them themselves. Then add in that the worst liars make the most money and the whole picture has skewed towards delusion. When you have a Federal Reserve, that isn't federal and only reserves the right to screw you, in charge of the US money power and the Golden Sackers in place at every critical point, you can expect to be made into a debt slave. Boom bust, boom bust, all your freedoms turn to dust. Wake up, it is worse than the depression. IF you don't quit playing Paulson's game, with Paulson's rules, then you deserve to get screwed. Buy physical silver and gold and then he is working to make you rich. It is probably the best time in the whole history of the world to buy silver. You are so lucky you have this opportunity to do one thing and insure your future. Right now, the US Mint says they would sell me a Silver Eagle for $12, except they aren't making enough and they won't sell you one. If I go to E-Bay, the price is over $30. In many ways, silver is now rarer than gold, yet you can buy 75 oz of silver with 1 oz of gold. On top of that, Gold is at least 1/2 off it's real value. At this point in the game, you must realize, that if our government bothers to make a statement on a subject, they only do it to lie and spin. If you are still listening to the mainstream media you are a fool. Furthermore you are a traitor. Ignorance is no excuse.

2008 Nov 13 12:02 PM

[CLH:]

The unemployment could be solved easily. Pass a federal right to work bill and get rid of the minimum wage bill (which is unconstitutional). Prices are coming down big time but employers cant hire at these ridiculous wages. Blame the democrats.

2008 Nov 13 03:11 PM