Recession Frequency Was Much Higher Pre-1990

by: Mark J. Perry
There have been a lot of comparisons of the most recent recession to the Great Depression and to previous post-WWII recessions, for example see the Minneapolis Federal Reserve website on The Recession and Recovery in Perspective. While most comparisons have been between the length and severity of the 2007-2009 recession to previous individual recessions, what has received considerably less attention is the frequency of recessions over various periods of time. That is, it's not only the length and severity of individual recessions that is important, but it's also important how frequent recessions occur over periods like 8, 10 and 12 year periods.

The top chart above shows the frequency and duration of the 12 recessions since WWII, according to data from the NBER. Using "inter-ocular least squares analysis" (i.e. "eyeballing" the data), it seems pretty obvious that recessions were much more frequent in the: a) mid-1940s to early 1960s period, and b) early 1970s to early 1980s period, than in the post-1982 period. Maybe one of the reasons the most recent recession seems particularly severe is that we "got spoiled" in the 25-year period between 1983 and 2007, with the economy in recession only 6.3% of the time, compared to the previous 25-year period when the economy was in recession 23% of the time from 1958 to 1982.

The next three charts show the percentage of months in recession over: a) rolling 8-year periods, b) rolling 10-year periods, and c) rolling 12-year periods. Over the last rolling 8-year period, the economy has been in recession 20% of the time, down from 25% a year ago. In contrast, the economy was in recession much more of the time over 8-year rolling periods between 1953 and 1990. Similar patterns emerge for the 10-year and 12-year rolling periods: the economy was in recession much more frequently between the 1950s and 1990 compared to the post-1990 period, and we definitely got "spoiled" in the 1990s and 2000s, with long periods of time during which the economy was expanding, not contracting.

For example, over 12-year periods, the economy was in recession for only 6.25% of time form more than half of the 1990s and half of the 2000s, representing the longest periods of ongoing economic expansion since WWII. So not only has the most recent recession been less severe than some of the previous recessions by certain measures by the maximum unemployment rate, but the recession frequency during the most recent 8-, 10- and 12-year periods has been much lower than the pre-1990 period.

Bottom Line: It could be a lot worse, and in fact when it comes the frequency of recessions, it was a lot worse in the much of the 1950s, 1960s, 1970s and 1980s than in the 1990s and 2000s.

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