How does this recession compare with previous ones?

by John B. Hagens

John has been with IPR since 1990, with activity in all of IPR's businesses. Prior to joining IPR, John was senior vice president for the WEFA Group, with responsibility for the company's U.S. economic forecasting service. Before his ten-year stint with Chase Econometrics (and then WEFA), John had jobs as senior economist for the Carter Administration's Council on Wage and Price Stability and for the Social Security Administration, the latter under a Brookings Institution Economic Policy Fellowship awarded while he was an economics professor at Colby College. John holds an undergraduate degree in mathematics and economics from Occidental College and a Ph.D. in economics from Cornell University.

How does this recession compare with previous ones?

As we celebrate Labor Day in the United States, it is appropriate to take stock of the severity of the current prolonged recession which began almost two years ago in December 2007. There are several ways to measure a recession such as the drop in gross domestic product, the drop in employment, and the rise in the jobless rate. A less frequently used measurement is the drop in total hours worked which incorporates both the loss of jobs as well as the drop in average weekly hours worked. Below is a dense table which compares the peak-to-trough percentage change in total hours worked by production and nonsupervisory workers on private non-farm payrolls, as measured by the Bureau of Labor Statistics.

The highlights are:

1. The current period easily ranks as the worst recession in terms of hours worked since at least 1960. Even if it ended this August, total private hours worked has dropped 8.3%. This compared with a drop of 4.3% for the previous six recession. The next worse recession was the OPEC-induced one in the mid-1970s when hours worked dropped 7.4%.

2. Moreover, this recession ranks number one in terms of severity in almost every industry. The only exceptions are:

• Mining and logging - the 1981-82 recession was worse
• Computer and electronic products - the 2001 recession from the bursting of the tech bubble and Y2K was worse
• Non-durable goods - the 1973-75 recession was worse
• Utilities - this recession has been relatively mild compared with previous downturns - hours have slightly increased
• Information - 1973-75 and 1981-82 were worse recessions
• Education and health services - hours have continued to grow as in all previous recessions!

3. The worst hit industries - those impacted roughly four times as much as the overall economy are:

• Motor vehicles and parts - its 37% drop in hours worked makes it the hardest hit industry
• Wood products, furniture and related products, textile mills - all had approximately 32% drops reflecting the housing crash

4. Both construction and durable goods manufacturing hours have dropped about 24%. Nondurable manufacturing, which is typically less impacted by a recession as it is boosted by food manufacturing and chemicals, has dropped 13%, again about twice as severe as the average recession.

5. The services industries have been least impacted with a 5% drop. This is typical of past recessions. However, the 6.7% drop in retail trade, reflecting the pullback by consumers, is almost three times worse than any previous recession. The collapse of the financial markets also produced an unusually large drop in hours in this industry - 4.8% compared with an average of a tiny 0.4% drop in the previous six recessions.