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short essays and reports on the economic issues of the day
2002 ■ Number 9

Does a Mild Recession Imply a Weak Recovery?
Kevin L. Kliesen and Daniel L. Thornton


of the recession (horizontal axis) and the strength of the
recovery (vertical axis) as hypothesized.
Using either measure, the correlation between severity
of recession and strength of recovery is not statistically
significant, although the relationship is somewhat stronger
using IP.1 Hence, while there is a positive correlation between
the severity of the recession and the strength of the recovery,
this relationship alone is not strong enough that knowledge
of the depth of the recession is useful for predicting the
strength of the subsequent recovery. Consequently, the mildness of this recession would appear to provide little if any
guidance about the strength of the recovery. ■

To further test the robustness of our finding, we used the length of the recovery
phase of the cycle as a proxy for the strength of the recovery. The recovery phase
of the business cycle can be defined as the period from the cycle trough to the
point when output surpasses its previous peak level. The more robust the recovery,
the shorter the recovery phase. Consistent with the results presented above, we
found no statistically significant negative relationship between the severity of the
recession, measured by the peak-to-trough drop in IP or real GDP and the length
of the recovery phase, i.e., the strength of the recovery.

Severity of Recession and Strength of Recovery

Strength of Recovery
(% Increase One Year After the Trough)

ome analysts have suggested that there is a statistically
reliable relationship between the severity of a recession and the strength of the subsequent recovery.
Specifically, the suggestion is that severe recessions are followed by robust recoveries and that mild recessions are
followed by relatively weak recoveries. Because the 2001
recession appears to have been the mildest during the postWWII period, can we expect a below-average recovery?
One frequently cited example that appears to support
this proposition is the 1990-91 experience. That recession
was very mild, and it was followed by a relatively weak and
protracted recovery. The unemployment rate, for instance,
peaked more than a year after the official end of the recession (March 1991). Similarly, the rather severe 1981-82
recession was followed by a robust recovery. While interesting, these examples do not constitute a significant regularity that tends to hold for all recessions and recoveries.
To investigate this proposition, we analyzed data on
post-WWII recessions and recoveries. According to the
National Bureau of Economic Research (NBER), there
have been ten postwar recessions, including the 2001
recession. One of these, the 1980 recession, was immediately followed by another, the so-called 1981-82 “double
dip” recession. Because the recovery period following the
1980 recession was relatively short, we eliminated it from
our analysis.
We measured the severity of each recession by the
decline in output, measured both by real GDP and industrial production (IP), from the NBER date of the business
cycle peak to the date of the trough. Likewise, the strength
of the recovery is measured by the growth in output, using
the same two measures, during the year following the
NBER-dated business cycle trough.
A scatter plot of these data for the eight postwar recessions prior to 2001 is presented in the accompanying figure.
The “lines of best fit” for both output measures indicate
that there is a positive relationship between the severity

Industrial Production

Real GDP



Severity of Recession
(% Decline from Peak to Trough)

Views expressed do not necessarily reflect official positions of the Federal Reserve System.