I’ve gotten a couple of requests for a comparison of our current recession to the one in 2001. Before I get started, a few caveats. The National Bureau of Economic Research is the ultimate authority on recessions, and the St. Louis Fed’s web site has a wealth of information on recessions and other economic topics. I am not trying to be smarter than NBER or the Fed as I am unlikely to win that battle of wits. Instead, I am providing a slightly different perspective, focusing on our Economic Index data. As is described in previous posts, our Economic Index is based on total wages paid, seasonally and inflation adjusted. Below is a graph showing our Economic Index for the United States overall. The 2001 and 2007-2009 recessions, as defined by NBER, are marked as the gray areas. As always, the light blue area is our estimate period, and the light red area is our forecast. NBER considers the 2001 recession to have begun in March 2001 and ended in November 2001, lasting eight months. Looking at our data, the beginning of the 2001 wage recession began in November 2000, three months before the beginning of the the economic recession, and lasted until and lasted until February 2003, making the wage recession 27 months, a bit more than three times as long as the economic recession. NBER considers the 2007-2009 recession to have begun in December 2007 and ended in June 2009, lasting 18 months. The start of the wage recession, though, is in August 2007, with the end in January 2010, meaning that the wage recession lasted 29 months. That makes this wage recession a little more than one and a half times the length of the economic recession, and only two months longer than the 2001-2003 wage recession. The depth of the two recessions was dramatically different. The 2001-2003 wage recession involved a drop of 4.1 point, while the 2007-2010 wage recession involved a drop of 9.0 points. In other words, the most recent wage recession was more than twice as deep as the the one in 2001-2003. Where do we go from here? Can we learn anything from the wage recovery beginning in 2003 that might apply to our current recovery? The 2003 wage recovery can be viewed as occurring in three phases: a few months of rapid improvement; a year of slow but steady improvement; and after which wage growth accelerates. Our current recovery is now three months into the second phase and seems to be following a similar pattern to the previous recovery, with very little wage growth. Our 12 month forecast (the red area) appears to take the second phase out to the limit of our forecast, though with a slight ramping up at the tail end which could be indicative of the beginning of the third phase. The forecast is plausible. Whether it is right remains to be seen.
November 15, 2010 By Leave a Comment