A Few Relationships Between Expansions and the Recessions that Follow Them
Good evening, and welcome. Last week I had a post looking at the recessions since 1929 (i.e., since the BEA began computing GDP data). Each recession was ranked according to its length and severity, and by the political party of the President under which the recession began.
This week I’d like to take a slightly different tack. This week we will look at how the length and severity of a recession are affected by the length and “growthiness” of the expansion that preceded it. Before we go on… data on real GDP per capita comes from BEA, which is available annually from 1929 to 1946 and quarterly thereafter. I did no smoothing – that is to say… for an event that occurred in January, February, or March of 2001, as an example, I used figures for Q1 of 2001. Recession cycle dates came from the NBER. OK. The preliminaries are out of the way, so ready, set and go.
The first graph shows the median annualized reduction in real GDP per capita as compared to the median length of the earlier expansion. Assuming I didn’t make a mistake (its 3AM as I write this) – the graph shows that in general, the longer the previous expansion, the less severe the shrinkage during the recession.
There isn’t nearly as strong a relationship between the speed of economic growth during the expansion and the speed of the decline during the recession.
(BTW… if you’re wondering, yes, count of previous expansion lengths = count of previous expansion rates + 1. This is because we do not have data on real GDP per capita prior to 1929, but we do know how many months there are in the expansion prior to the Great Depression.)
What about the length of the previous recovery. The following graph shows us that longer expansions typically result in shorter recessions.
There does not, however, seem to be a clear relationship between the speed of the expansion and the length of the recession.
So… the speed of the expansion isn’t clearly related to the severity or length of the recession. However, the length of time between recessions does affect both the severity of the recession and how long it lasts.
Next week… the relationship between the recessions and subsequent expansion.