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Economic SYNOPSES
short essays and reports on the economic issues of the day
2009 ■ Number 4

The Current Recession: How Bad Is It?
Charles S. Gascon, Senior Research Associate
n November 28, 2008, the Business Cycle Dating
Committee of the National Bureau of Economic
Research (NBER) declared that a recession began
in the United States in December 2007.1 This committee
“In a recession, the severity of the
defines a recession as “a significant decline in economic
decline is just as relevant as the
activity spread across the economy, lasting more than a
duration of the recession.”
few months, normally visible in production, employment,
real income, and other indicators.” The U.S. economy has
experienced six recessions over the past 40 years. On average these recessions have lasted 10.7
months. The longest recessions—
Comparison of Main Business Cycle Indicators
beginning in November 1973 and
July 1981—each lasted 16 months.
Industrial Production
Real Income
The shortest recession—beginning
Index (month zero = 100)
Index (month zero = 100)
105
105
in January 1980—lasted only six
months. Although the end of the
100
current recession is unclear, many
100
economists expect it to extend into
mid-2009, a duration of around 18
95
months.
95
The most skeptical economists
90
believe that because of the contraction in the housing market and
90
85
−12 −8
−4
0
4
8
12
16
–12 −8
−4
0
4
8
12
16
problems in financial markets, the
Months
Months
magnitude of the current recession
could be the most severe in decades,
perhaps comparable to the Great
Employment
Real Retail Sales
Depression. Although the causes of
Index (month zero = 100)
Index (month zero = 100)
the current recession may be
105
115
unique, main recession indicators
have moved in a predictable fashion.
105
In a recession, the severity of the
decline is just as relevant as the dura100
tion of the recession. These two meas95
ures are not independent; a prolonged
but shallow recession may have an
aggregate impact similar to a short
95
85
but deep recession.
−12 −8
−4
0
4
8
12
16
−12 −8
−4
0
4
8
12
16
Months
Months
To compare the current recession
with the past six recessions, the chart
Current Recession
Average of Past Six Recessions
Highest
Lowest
plots four main economic indicators

O

Economic SYNOPSES

Federal Reserve Bank of St. Louis

used by the NBER: industrial production, real personal
income less transfer payments, employment, and real retail
sales and food services.2 Each series is indexed to 100 at
the start of the recession. The horizontal axis indicates the
number of months before (negative values) and after (positive values) the start of a recession, where zero indicates the
month the NBER determined the economy moved into a
recession.3 The black line indicates the averages over the
past six recessions,4 the blue line data on the most recent
recession, and the two dashed lines the highest and lowest
values of each series, capturing variability across the past
recessions.
Based on these indicators, the current recession has been
worse than average; however, the declines are not unprecedented. In the previous recessions, industrial production
tended to decline sharply at the business cycle peak; in the
current recession, it did not decline sharply until early 2008.
In the current recession, real income declines have been
significant; at the start of the recession, incomes were above
their pre-recession averages but are now slightly below
average. Current employment trends are consistent with
past recessions, although in recent months employment has

2

begun to approach its lowest levels. The most disturbing
current indicator is the decline in real retail sales. Historically, retail sales have stabilized within months of the beginning of a recession; eleven months into this recession retail
sales continue to decline.
Main recession indicators tend to support the claim that
this recession could be the most severe in the past 40 years.
However, we are still far from another Great Depression.
The severities of the declines experienced so far have been
consistent with past recessions, and although the length of
the current recession could set a record, it will likely be only
by a few months. ■
1

The NBER is a not-for-profit corporation that sponsors economic research and
promotes dialog on economic issues. By informal consensus, economists and
policymakers accept the Business Cycle Dating Committee’s judgment on business
cycle turning points. The NBER report is available at
wwwdev.nber.org/cycles/dec2008.html.

2 Deflated using the Consumer Price Index for All Urban Consumers (1982-84 = 100).
3 According to the NBER, recessions began in December 1969 (lasting 11 months),

November 1973 (16), January 1980 (6), July 1981 (16), July 1990 (8), and March
2001 (8).
4

Because some recessions were shorter than 16 months, the average is pulled
upward toward the end of the sample.

Posted on January 8, 2009
Views expressed do not necessarily reflect official positions of the Federal Reserve System.

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