What Makes This Recession Unusual
RECESSIONS do not follow standard patterns. Of course, by definition a recession involves slower activity in a broad cross section of the economy. But each such slump has some individual characteristics.
The last recession eight years ago was a severe one. National output dipped 3.4 percent. That's not as much as the 4.3 percent downturn in 1975, but more than the minus 2.3 percent in 1980 or the 0.8 percent slide in 1970. Unemployment reached nearly 11 percent of the work force in late 1982, almost twice as high as today. Many of the jobless from the ``rust belt'' piled into their cars and drove toward the more prosperous Sun Belt. In Texas, the migrants became known as ``blackbirds'' because of the black license plates of those from Michigan.
This time most economists anticipate a mild downturn. The Iraq-Kuwait oil shock is not close to the magnitude of those prior to the severe recessions of 1982 and 1975, notes Roger Brinner, chief economist with DRI/McGraw-Hill, a Lexington, Mass., consulting firm. The price surge, from $18 to $30 per barrel, is less than half as big. And the role of oil in US economic output is only two-thirds as great as it was in 1980. Purchasing power losses are one-quarter to one-third the size of the 1979-81 episode, calculates Mr. Brinner.
Nonetheless, some economists blame the current recession on the Iraq-Kuwait shock. ``It's the fear of war that is depressing the economy,'' states Sam Nakagama, a Wall Street economist.
``The uncertainty created by this episode has caused businesses and consumers to severely curtail spending,'' notes Michael Keran, chief economist at the Prudential Insurance Company of America. As a result, he has marked his forecast for the United States economy down sharply, anticipating a decline in national output at a 2 or 3 percent annual real rate in the fourth quarter of 1990 and first quarter of 1991. If that war threat evaporates, he expects business to rebound. But it could fall back again if the price of oil remains around $25 per barrel.
Geoffrey Moore, director of the Center for International Business Cycle Research at Columbia University, notes three unusual features in this slump. One is the lack of a large buildup in inventories. With modern electronic tracking of sales, retailers no longer find themselves with as large unsold stocks of goods on their shelves when consumers become tightwads.
A second is the risk from the excesses in the financial industry - the savings-and-loan crisis and the losses being suffered by banks from bad loans in real estate or for leveraged buyouts.
A third factor, Dr. Moore says, is that the service sector appears headed for trouble. In recent recessions, service activity has only leveled off - not turned down.
Leonard Lempert, of Statistical Indicator Associates in North Egremont, Mass., sees a difference in this slump in the speed with which automobile manufacturers have stopped or slowed production when sales fell off. In past recessions, they were slower to lay off workers.
Also, Mr. Lempert says, the current recession (9 out of 10 chances it is one, he says) follows a long but relatively weak economic expansion. ``We never overcame the devastating 1980 and 1981-82 recessions,'' he says. Growth in the 1980s was slower than in previous postwar decades. ``The lack of long-term growth has finally caught up with that speculation in the 1980s. It left us in a difficult situation.''
Benjamin Friedman, a Harvard University economist, suspects the decline in real wages for many workers during the 1980s could make this recession feel especially bad as layoffs spread and the unemployed remain longer between jobs. He's concerned about the possibility of some social unrest as a result of the widening of the income gaps between the rich and the college-educated, and the poor and those with high school graduation or less in education.
Mr. Friedman also wonders what elements will snap the economy out of its current slump. The Federal Reserve System, he says, hasn't pushed down interest rates as rapidly as in earlier recessions. Further, with the personal savings rate already low, consumers may be reluctant to spend more. And after the current fiscal year, government spending is supposed to be restrained.
This slump could drag on into 1992, he warns.