Can We Use the 1970s, 1980s or 1990s as an Unemployment Benchmark?

by: Mark J. Perry

The top chart above shows yesterday's updated WSJ consensus forecast (based on 55 forecasters, data here, article here) for the U.S. jobless rate of 7.7% in December 2009, up from the 6.8% forecast previously (see CD post here).

Let's say the forecasters are correct and the U.S. unemployment rate rises to 7.7% by the end of next year. Hopefully, that would be close to the peak unemployment rate for the 2009 recession, and economic recovery would in place by the last half of 2009 when the consensus forecasts for real GDP growth are +1.6% for QIII and 2.1% for QIV.

If those assumptions are correct that: a) unemployment will peak at 7.7% in December 2009, and b) the U.S. economy will enter an economic expansion by the second half of 2009, the relevant comparison of today's economic conditions is NOT the 1930s and the Great Depression, but the recessionary conditions of the 1970s, 1980s and the 1990s (see bottom graph above).

Bottom Line: Under the consensus assumptions of the WSJ panel of 55 forecasters about the coming economic conditions in 2009, the comparisons to the 1930s and the Great Depression seem fantastic, exaggerated and alarming. As I mentioned before: only we experience a 9% jobless rate like the 1970s, or the double-digit jobless rates of the 1980s, or the 7.8% jobless rate of 1991, should we start making comparisons to the 1930s.

Until then, let's use the 1970s, 1980s or the 1990s as the benchmark comparison decades for any discussion of "the worst economy since...."