The recession is running less severe than average
Is the United States somewhere between a severe recession and a full-bloom depression? Or is it experiencing more of an average recession?
During the last presidential campaign, political arguments were waged over which was more important, higher unemployment or higher employment, that is, the number of people out of work vs. the increasing number of people with jobs. Unfortunately, there is no single criterion for deciding.
There have been seven generally acknowledged recessions since 1948, and there is no final arbiter to determine whether one recession as a whole is as bad as a previous recession. To obtain a reasonable answer, it is necessary to look at a number of broad measures of the economy in a number of ways.
No one economic indicator can be singled out. And using such ''scare'' references as the prospects of the highest unemployment rate since the Great Depression ignores long-term structural changes in the US economy in the last 40 years. For instance, a far higher proportion of women are employed now.
The four broadest monthly measures of the economy include deflated personal income less transfer payments, nonagricultural employment (based on payroll data), deflated manufacturing and trade sales, and an index of industrial production. Another widely accepted quarterly economic measure is the deflated gross national product.
The average recession decline in personal income has been -3.1 percent; so far in this recession it is -1.0 percent.
The average reduction in nonagricultural employment is 2.8 percent; now it is 1.3 percent. Manufacturing and trade sales have dropped an average 7.5 percent; this time, they are down 7.1 percent. The average drop for industrial production is 10.3 percent; here, it is 9.3 percent. Finally, the GNP has been down an average 2.5 percent, compared with a 2.3 percent drop in this recession (based on the government's ''guesstimate'' for first-quarter 1982).
Why, then, should there be any question that, thus far, the current recession is not as bad as the average recession?
One reason is that the current recession may not have hit bottom and some individuals fear it will be much worse.
Through February, the current recession was in its seventh month. Most recessions have lasted a few months longer. Thus, the percentage declines we have mentioned may become greater.
We can, for example, compare today's weaknesses with those after only seven months of the previous recessions, rather than with the recessions as a whole.
If we do, we get a mixed picture. Industrial production, for example, is worse than the average 7-month decline; but personal income is clearly not as weak as the average 7-month average.
Another reason for differing judgments as to the severity of the current recession is that the uptrend in the economy preceding this recession was so mild. Thus, in some economic measures, less-than-average recession declines have resulted in levels below those in the last recession.
This is true of one of the five economic measures we have mentioned (manufacturing and trade sales) and could soon be true of two more (industrial production and GNP).
It is true of the number of unemployed and very close to being true of the unemployment rate (the number of unemployed compared with those looking for work).
To the individual, unemployment, of course, is one of the most important economic conditions. Who cares about whether total industrial production is up or down as long as a person is working? For the person unemployed for the first time, this is obviously the worst recession. Telling him the recession is not as bad as usual is little consolation.
The larger number of unemployed by itself is not a satisfactory statistic for measuring the magnitude of the recession as a whole, simply because there are so many more individuals in the labor force today looking for work than ever before. A million unemployed today in no way compares statistically to a million unemployed in the Great Depression.
The unemployment rate is a much better statistic for comparative purposes. But even here, changes in the economy make comparisons difficult.
Since 1968, apart from the so-called ups and downs in unemployment, there has been an underlying increase in the rate.
Thus, at its best in 1974 and in 1979 and again in 1981, when the economy was experiencing major upward movements, periods of relative so-called prosperity, the unemployment rate was successively worse. At those same times, the percentage of people employed of the total working age population was rising higher and higher to post-World War II record peaks.
One reason for this could be the increased number of married women who have entered the labor force. An unemployed spouse in a family where the other spouse is working means a 50 percent unemployment rate for that family. Before the spouse started looking for work, the unemployment rate for that family was 0 percent.
Based on the broadest measures of the economy, then, the magnitude of the declines in the US economy is not yet between a severe recession and a depression. But the declines are at most unsatisfactory levels. Whether the recession is worse than average depends on how you measure it.