The long and the short of recoveries: we've just had the short of it
North Egremont, Mass.
Since the end of World War II, the US economy has experienced eight major economic recoveries from preceding recessions. If a recession has now started, it means the recovery from the 1980 recession was by far the shortest of the eight.Going clear back to the earliest recorded recovery, during 1854-57, we find that only one of those before 1980-81 was as short as this latest one.
Thus, while much attention is focused on how bad the coming recession will be , there has been little attention on the lethargy of the preceding recovery.
Some readers may recall our Monitor article in February headlined ''US recovery slowest since World War II.'' Then came our article in July, cautioning that the economic recovery was most unusual in its rapid rises in interest rates , commercial and industrial loans, and unit labor costs. It said, ''These strange developments may result in the shortest comeback since 1919-20.''
Though economic data available in July might warn of difficulties ahead, they had not yet confirmed the actual end of the recovery. That picture remained to be seen.
The popular misconceptions that two quarters of decline in GNP constitute a recession is not the criterion for defining the existence of a recession nor of when it has started.
Evidence of the end of the latest recovery has shown up in two major economic indicators. The Federal Reserve Board's index of industrial production stopped rising in July 1981. The Bureau of Labor Statistics' measure of nonagricultural employment stopped rising in August. Such monthly indicators, rather than quarterly indicators such as GNP, take precedence in dating the end of a recovery.
Based on a large number of such economic measures, a look at the beginning and end of economic upswings and downswings in the post-World War II years shows their lengths as follows (I choose 1974 rather than '73 for the end of the upswing that began in 1970):
Recoveries Dates Months 1945-48 37 1949-53 45 1954-57 39 1958-60 24 1961-69 106 1970-74 45 1975-80 58 1980-81 12 Recessions Dates Months 1948-49 11 1953-54 10 1957-58 8 1960-61 10 1969-70 11 1974-75 7 1980-81 6 1981-?
If President Reagan is correct that the country is now in a recession, the recovery lasted only half as long as the shortest of the seven previous recoveries - a most extraordinarily weak performance.
As for a ''light'' recession, it is not really clear whether the President means ''to date'' or ''by the time it ends.''
''To date,'' through October 1981, the recession is only three months old. With the shortest recession in the table six months long, the weakness to date is very short. How long it will continue and how deep it's to be are questions that are not easily answered.
As can be seen in the table, recent recessions have not been especially drawn out. They range from as short as six months to as long as 11 months.
Their length is not related, however, to the length of the preceding recovery. There is no evidence that short recessions tend to follow short recoveries - or long recoveries, either.
It is not even possible to contend that the quicker that business makes needed corrections, the quicker the economy will be on its way up again. The reason the 1980 recession was so short is probably that the economy started up again before the corrections were made. It was this start-up that in turn helped shorten the recovery.
The last two recessions were shorter than any of those that preceded them. There is some reason to believe that recessions should be shorter today because businessmen these days can make corrections so quickly. If so, the economy will be on its way up after January. If not, chances are that it will not be until May or June that we see a sustained upswing.
Whether it's January or midyear, the subdued, short recovery we've had means that long-term growth of the economy, seen beyond its recent ups and downs, has drastically slowed since 1978.