Great Depression 2? Not Even Close.

Between 1931 and 1940, the MINIMUM monthly unemployment rate was 11% in July 1937, and the average jobless rate was 17.3% (see chart above). It seems very likely that the MAXIMUM unemployment during the current recession won't reach the MINIMUM of 11% during the Great Depression.

According to the Philadelphia Federal Reserve Survey of Professional Forecasters (released February 13, new survey is due out this Friday), the average unemployment rate expected for 2009 is 8.4% and the average forecast for 2010 is 8.8%. Obviously these forecasts will be adjusted upward this Friday, but it still seems probable that the jobless rate in this recession won't even reach the minimum monthly rate of the 1930s, and certainly won't come anywhere close to the 17.3% average jobless rate during the Great Depression.

For a related analysis, see Freakonomics post "This is Not Another Great Depression"

Note: Unemployment insurance didn't exist until 1935.

Real GDP contracted annually by about 8%, 6% and 13% in the first three years of the Great Depression, for a cumulative decrease of more than 27% (see chart above). According to the Philadelphia Federal Reserve Survey of Professional Forecasters (released February 13, to be updated this Friday), real GDP will contract this year by -2.0 before increasing by 2.2% next year. Even if real GDP contracts by much more than 2% this year before returning to positive growth next year, it will be nothing close to the contraction in real GDP of the early 1930s.

"This is Not Another Great Depression," which concludes: "We are experiencing pain now, but the problems of the Great Depression were several magnitudes greater."

Related: The White House is projecting that the nation's economy will shrink by 1.2% this year and increase by 3.2% next year. In addition, it projects that "by the end of this year," the economy will be growing at a 3.5% annual rate.

Comments

[Donald Ingram:]

Firstly - you must explicitly trust the governmental statistics and the Federal Reserve survey as being truthful and free of mistakes.
Secondly - you must have absolute, unfathomable faith in the present administration and their expertise in economic affairs.
I find that holding either of these suppositions is, at best, laughable! Most compare the current global economic situation to the Great Depression. In my view the only similarity is in some of the mechanics involved. This new economic epoch we find ourselves in has no name as of yet. This global harbinger of fundamental change has just started to run it's course. We do not know, as yet, what the consequences will ultimately be. One thing that we do know - is that the world as we have known it, has started on a brand new economic course to destinations unknown to any of the passengers. This voyage will endure for the next five years.

May 12 04:04 AM

[Dusty:]

It would appear that this article completely misses the disparities between the happy numbers from the Beltway and the numbers of U3 and U6, let alone the numbers estimated by the few sources trying to determine current reality.

The current state of the economy is also not even close to where it is going. The housing-driven crash of Subprime that brought us to where we are now is only a prologue.

The housing-driven crash of Alt-A and its affiliates is barely starting to tickle awareness of its existence. By the end of the year (2009) it will be a major force. In 2010 and 2011 it will be a tornado tearing down the wealth of the nation, blowing away the wealth of the middle classes and more.

It will be late in 2012 before we can step back and even begin to survey the damage, two years to try and clear the wreckage, an average after one of these events of an additional 5 years to recover beyond that.

It may well be 2013 or 2014 before a realistic evaluation can be made of what kind of Recession or Depression this is. For now we should all consider that it will be far worse than our personal experiences can imagine and try to prepare accordingly.

---------Dusty.

May 12 09:35 AM

[B. Ray:]

Dusty,

Any figure for Alt-A ?

May 12 10:32 AM

[John Lounsbury:]

B. Ray - - -

To see the coming mortgage reset bubble (Alt-A and others) look at the first graph in
seekingalpha.com/artic...

May 12 11:16 AM

[TheReaper!:]

Ask any one who has lost his job and his home if we are in a Depression .

Instead of listening to the numbers propaganda from the government , look at total tax receipts going into the government's coffers .

And above all remember this , we're just getting started . This down turn will be decades long .

TheReaper!

May 12 12:55 PM

[robert99:]

The difference between then and now has been the government's response. Had the Federal Reserve and Treasury not thrown money at the problem with abandon, we would be well on our way to a second Great Depression. Instead of reading about the latest bailouts, you would be reading about the latest riots and collapsed governments. I'm a libertarian, and had the government allowed the debt bubble to burst, I would have been prepared and willing to accept the consequences of such an action, dire though they would have been. However, I doubt most people realized the extent of the financial system's problems and what would likely have occurred absent massive government intervention. All of the knee jerk negative reactions to the tremendous amount of money that was spent to maintain the status quo were largely devoid of consideration of the consequences of choosing to do nothing. I believe that in 30 years, provided the increase in the national debt resulting from the bailouts does not terminally cripple the US, economics texts will laud Bernanke as the man who saved the global economy. Whoops, I'm ranting. My point is that the two events were very, very similar (and if anything, conditions were worse the second time around) right up until the point at which the government decided to bring it's full force to bear upon the problem. Bernanke's specialization in the Great Depression, at least from a Keynesian perspective, has payed off in spades. And now, here we go again, kicking the can further down the road...

May 12 01:35 PM

[CLH:]

The damage done will probably be less then the 1930s. Certainly Japans credit crisis has done less damage than in 1930s. However , the problem is much worst now then in the 1930s. In the 1930s total debt was 140% of GDP while today the total debt is well over 300% of GDP. It should take many years before this can be corrected.

As savings go up, the debt will gradually disappear. This is positive but many will suffer.

May 12 02:13 PM

[PROXIMO:]

"Great Depression 2? Not Even Close." Yet.

May 12 11:17 PM