It's Official: Economic Recovery in the Great Depression is Faster than the Great Recession's

The economic recovery of the Great Recession has been almost imperceptible to most Americans. On a per capita bais, real GDP per Capita grew by 11.55% in the past twelve years - or roughly a compounded annual average growth rate of only 0.91% per annum. This is far less than the so-called "Hindu Rate of Growth" threshold of 1.30% per annum.  This growth rate is so slow that it is almost imperceptible.

In 2019, something extraordinary happened. Those who survived the Great Depression in 1941 (twelve years after the onset of the Great Depression) will be substantially better of than the survivors of the Great Recession in 2019. Real GDP Per Capita for Great Recession survivors would have grown by another anemic 0.91% per annum in 2019. But for survivors of the Great Depression era, their incomes per capita would have grown by an astounding 15.95% in just one year. Moreover, that trend will only accelerate in the next two years. By 1943, Great Depression survivors will be almost 34.48%  richer than they were in 1941.

Can we expect the same for survivors of the Great Recession in the next two years? It's possible but not probable.

Great Recession vs. Great Depression: The GDP Growth Rate Has Finally Speed Up!

Last month, the Bureau of Economic Analysis released an initial estimate of the GDP growth rate for the fourth quarter of 2018.  The good news? Real GDP increased 2.9% in 2018, the highest annual growth rate it has been since the start of the Great Recession.

 The bad news? Growth seems to have peaked in the second quarter of 2018. From a high of 4.2% in Q2, growth slipped down to 3.1% in Q3 and to 2.6% in Q4.

On a Nominal GDP Per Capita basis, the economic recovery of the Great Recession is still way ahead of the Great Depression. The dip in nominal GDP per capita was really shallow - less than 3 percentage points. The drop in GDP per capita during the Great Depression was a catastrophic 47%.

At this point in the economic recovery, some eleven years after the Great Recession started, we are more than 30% better than where we were. Whereas during the Great Depression, nominal GDP per capita remained almost 10% below the depression's inception.

 In terms of real GDP per capita, people were made whole only on 2013 of the Great Recession. Five years later, we are only 9% better than where we were in 2013.  During the Great Depression, people were only made whole, in terms of Real GDP Per Capita, only on year 10 of the Great Depression. But the recovery accelerated even faster. Just one year later, people were 8% better. That trend will accelerate in year 12 - by then, they will be almost 18% better than they were just one year earlier. Now where will we be one year from now? We don't know. So far, we are faring better than people of  the Great Depression, but just barely.

Great Recession vs. Great Depression: The GDP Growth Rate Is Finally Speeding Up!

Two months ago, we lamented on how the economic recovery of the Great Recession had become officially much slower than that of the Great Depression. Last week, the Bureau of Economic Analysis released an advance estimate of the GDP growth rate for the second quarter of 2018.  The good news? It's finally at 4.2%, a rate not seen since the third quarter of 2014.

On a Nominal GDP Per Capita basis, the economic recovery of the Great Recession is still way ahead of the Great Depression. The dip in nominal GDP per capita was really shallow - less than 3 percentage points. The drop in GDP per capita during the Great Depression was a catastrophic 47%.

At this point in the economic recovery, some eleven years after the Great Recession started, we are almost 30% better than where we were. Whereas during the Great Depression, nominal GDP per capita remained almost 10% below the depression's inception.

In terms of real GDP per capita, people were made whole only on 2013 of the Great Recession. Five years later, we are only 9% better than where we were in 2013.  During the Great Depression, people were only made whole, in terms of Real GDP Per Capita, only on year 10 of the Great Depression. But the recovery accelerated even faster. Just one year later, people were 8% better. That trend will accelerate in year 12 - by then, they will be almost 18% better than they were just one year earlier. Now where will we be one year from now? We don't know. So far, we are faring better than people of  the Great Depression, but just barely.

Great Recession vs. Great Depression: Is the GDP Growth Rate Finally Speeding Up?

 Two months ago, we lamented on how the economic recovery of the Great Recession had become officially much slower than that of the Great Depression. Last week, the Bureau of Economic Analysis released an advance estimate of the GDP growth rate for the second quarter of 2018.  The good news? It's finally at 4.1%, a rate not seen since the third quarter of 2014.

On a Nominal GDP Per Capita basis, the economic recovery of the Great Recession is still way ahead of the Great Depression. The dip in nominal GDP per capita was really shallow - less than 3 percentage points. The drop in GDP per capita during the Great Depression was a catastrophic 47%.

At this point in the economic recovery, some eleven years after the Great Recession started, we are almost 30% better than where we were. Where as during the Great Depression, nominal GDP per capita remained almost 10% below the depression's inception.

In terms of real GDP per capita, people were made whole only on 2013 of the Great Recession. Five years later, we are only 12% better than where we were in 2013.  During the Great Depression, people were only made whole, in terms of Real GDP Per Capita, only on year 10 of the Great Depression. But the recovery accelerated even faster. Just one year later, people were 8% better. That trend will accelerate in year 12 - by then, they will be almost 18% better than they were just one year earlier. Now where will we be one year from now? We don't know. So far, we are faring better than people of  the Great Depression, but just barely.

It's Official: The Current Economic Recovery is Now Much Slower Than That of the Great Depression

There's no doubt about it. The economic decline of the Great Depression was extremely severe. Nominal GDP per capita decline by almost 50% during the Great Depression versus a slightly more than 2% decline in Nominal GDP per capita during the Great Recession. Eleven years after the start of the Great Depression, Nominal GDP per capita was still almost 10% lower. In the Great Recession, it is 27.01% higher.

However, economic growth rates during the Great Depression were much more robust than that of the Great Recession, both on an absolute basis and on a per capita basis.

In truth, the economic recovery of the Great Recession has been almost imperceptible to most Americans. On a per capita bais, real GDP per Capita grew by 7.66% in the past eleven years - or roughly a compounded annual average growth rate of only 0.67% per annum. This is far less than the so-called "Hindu Rate of Growth" threshold of 1.30% per annum.  This growth rate is so slow that it is almost imperceptible.

In 2018, something extraordinary happened. Those who survived the Great Depression in 1940 (eleven years after the onset of the Great Depression) will be substantially better of than the survivors of the Great Recession in 2018. Real GDP Per Capita for Great Recession survivors would have grown by another anemic 0.67% per annum in 2018. But for survivors of the Great Depression era, their incomes per capita would have grown by an astounding 7.75% in just one year. Moreover, that trend will only accelerate in the next three years. By 1943, Great Depression survivors will be almost 56%  richer than they were in 1940.

Can we expect the same for survivors of the Great Recession in the next three years? It's possible but not probable.

Previous Post: The American Rate of Growth 

 Great Depression vs. Great Recession

The American Rate of Growth

The economic recovery of the Great Recession has been almost imperceptible to most Americans. On a per capita bais, real GDP per Capita grew by 7.11% in the past ten years - or roughly a compounded annual average growth rate of only 0.69% per annum. This is far less than the so-called "Hindu Rate of Growth" threshold of 1.30% per annum.  This growth rate is so slow that it is almost imperceptible.

 Sometime in 2018, if growth rates continue their current trend, something extraordinary will happen. Those who survived the Great Depression in 1940 (eleven years after the onset of the Great Depression) will be substantially better of than the survivors of the Great Recession in 2018. Real GDP Per Capita for Great Recession survivors would have grown by another anemic 0.69% per annum in 2018. But for survivors of the Great Depression era, their incomes per capita would have grown by an astounding 7.75% in just one year. Moreover, that trend will only accelerate in the next three years. By 1943, Great Depression survivors will be almost 56%  richer than they were in 1940.

Can we expect the same for survivors of the Great Recession in the next three years? It's possible but not probable.

Recovery in the Great Recession Has Been Amost Imperceptible - Let Me Tell You Why!

The economic recovery of the Great Recession has been almost imperceptible to most Americans. On a per capita bais, real GDP per Capita grew by 6.71% in the past ten years - or roughly a compounded annual average growth rate of only 0.72% per annum. This is far less than the so-called "Hindu Rate of Growth" threshold of 1.30% per annum.  This growth rate is so slow that it is almost imperceptible.

Sometime in 2018, if growth rates continue their current trend, something extraordinary will happen. Those who survived the Great Depression in 1940 (eleven years after the onset of the Great Depression) will be substantially better of than the survivors of the Great Recession in 2018. Real GDP Per Capita for Great Recession survivors would have grown by another anemic 0.72% per annum in 2018. But for survivors of the Great Depression era, their incomes per capita would have grown by an astounding 7.75% in just one year. Moreover, that trend will only accelerate in the next three years. By 1943, Great Depression survivors will be almost 56%  richer than they were in 1940. 

Can we expect the same for survivors of the Great Recession in the next three years? It's possible but not probable.

Great Depression vs. Great Recession GDP Growth Rates - Third Estimate of the First Quarter of 2017

Last Thursday, June 29, 2017, the Bureau of Economic Analysis released their third estimate of 2017's first quarter GDP growth rate: 1.40%. For the fourth quarter of 2016, GDP grew by 2.1%.

The economic recovery from the Great Recession has been downright sluggish, never taking off beyond the 3.00% growth rate that signals a robust economic recovery and always flirting with the 1.00% growth rate that signals a stalling economy.

On a nominal basis, the economy is 31% larger than what it was ten years ago. In real terms, it's just 13% larger.

On a per capita basis, real GDP grew by only 5.34% for the past ten years, for a compounded annual average growth rate of only 0.52% per annum - far less than the so-called "Hindu Rate of Growth" threshold of 1.30% per annum. This growth rate is so slow that it is almost imperceptible.

To top it all, the growth has not been evenly distributed. As of year-end 2015, Real Median Household Income stood at $56,516 or 1.58% below the Real Median Household Income of $57,423 in 2007 and 2.41% below that of 1999 ($57,909). Almost all the gains in the economy have been going to the upper echelons of US society.

Great Depression vs. Great Recession GDP Growth Rates - Updated As of the First Quarter of 2017

In March 2015, two illustrious economists, both Former Fed Chairman Ben Bernanke and Former Treasury Secretary Larry Summers have been duking it out on the blogosphere about secular stagnation.  In layman's terms, both are attempting to describe why the US Recovery from the Great Recession feel so sluggish.

Ten years into the start of the Great Recession and the economy is no where near take-off speed. Instead, we seem to be decelerating. The first quarter growth for 2017 was an anemic 0.7% annualized. To be fair, the economy does seem to get the "winter blues" in the first quarter of each year, sometimes dipping into negative territory.

At this point in the Great Depression, the US economy was roaring back into recovery at an 8.08% annual growth rate, something that economists today can only dream of. Despite five years of deeply negative economic growth (1930 to 1933 and 1938), the US economy managed to grow at an average growth rate of 1.31% per year. Our current average? Only 1.25% per annum, despite having a relatively shallow dips of -2.70% in 2008 and -0.20% in 2009.  Our economic growth rate never went past 2.70% (in 2013) this entire time. The economy has truly stagnated with no end in sight.

Great Depression vs. Great Recession GDP Growth Rates - Updated As of the Third Quarter 2016

In March 2015, two illustrious economists, both Former Fed Chairman Ben Bernanke and Former Treasury Secretary Larry Summers have been duking it out on the blogosphere about secular stagnation.  In layman's terms, both are attempting to describe why does the US Recovery from the Great Recession feel so sluggish.

Although the overall collapse in REAL GDP was relatively shallow  (-3.1% from peak to trough in real terms and -0.4% in nominal terms) and took place over two years (2008 to 2009), the recovery in the seven years since then has been very anemic.  The economy reached parity with its pre-recession peak GDP in nominal terms in 2010, only three years after the Great Recession started in December 2007.   In real terms, it took an additional year, by 2011, to reach parity with its pre-recession peak.  By the 3rd Qtr of 2016, the US economy is only 29.35% larger, in nominal terms, than the bottom in 2009, averaging only 3.75% growth every year since the Great Recession bottomed out. In real terms, the US economy is only 15.95% larger than the bottom in 2009, averaging only 2.14% growth every year since 2009.

The overall economic contraction during the Great Depression was much more severe (-46% in nominal terms and -27% in real terms from peak to trough) and took much longer (four years from 1930 to 1933).  In real terms, economic parity with its pre-depression peak was only reached in 1936, seven years after the start of the Great Depression. Despite the severity and depth of the economic contraction, it only took three years after the 1933 bottom for the US economy to reach parity (in real terms) with pre-depression peak in 1929.  Recovery, in terms of economic growth rates, was a lot more robust, averaging 10.9% annually during this period.  In the four years since the US economy bottomed out in 1933, the US economy was 43.5% larger than the bottom in 1933, averaging 9.44% growth per year every year. In nominal terms, the US economy only recovered its pre-depression peak only sometime in 1941, when WWII spending began in earnest.

Great Depression vs. Great Recession

Source: www.worldbank.org, www.bea.gov, Reinhart and Rogoff, "This Time is Different"

US Jobs Recovery is Not Running Fast Enough to Stay in Place

Today, the US Labor Department reported that the US economy added around 156,000 jobs in September 2016.  Year to date, the US economy has added around 2.03 million jobs in the nine months since 2015. In the same time, the working-age population (Civilian Non-Institutional Population in BLS parlance) has increased by 2.16 million, leaving 81 thousand out of the labor force.

This pattern has been true for much of the jobs recovery since the Great Recession began in December 2007: the jobs recovery has not been fast enough to cope with the increase in the working-age population.

United States
Employment Situation
In Thousand Persons
											2007 to September 2016
	2007	2008	2009	2010	2011	2012	2013	2014	2015	September 2016	Variance	% Variance
Civilian Non Institutional Population	231,867	233,788	235,801	237,830	239,618	243,284	246,745	249,027	251,936	254,091	22,224	9.58%
Labor Force	153,124	154,287	154,142	153,889	153,617	154,975	155,047	156,129	157,833	159,907	6,783	4.43%
Employed	146,047	145,362	139,877	139,064	139,869	142,469	144,671	147,442	149,929	151,968	5,921	4.05%
Unemployed	7,078	8,924	14,265	14,825	13,747	12,506	10,376	8,688	7,904	7,939	861	12.16%
Not in Labor Force	78,743	79,501	81,659	83,941	86,001	88,310	91,698	92,898	94,103	94,184	15,441	19.61%

Throughout the whole recovery, the US Civilian Non-Institutional Population has grown by 22.22 million or 9.58% but employment has grown by only 5.92 million or 4.05%.  This has resulted in a disproportionate increase in the people who are not counted as part of the labor force.  "Not in Labor Force" has grown by 15.44 million or 19.61%.

Not in Labor Force has become an ever increasing part of the US working-age population.

As a result, the country's employment to population ratio and labor force participation rate have yet to recover to pre-recession levels.

The labor economy shows signs of improvement.  Part-time employment and long-term unemployment are down significantly.

Moreover, Temporary Help Services are beginning to taper off.

So, the US Jobs Recovery is just muddling through.

Great Depression vs. Great Recession GDP Growth Rates - Updated As of Second Quarter 2016

In March 2015, two illustrious economists, both Former Fed Chairman Ben Bernanke and Former Treasury Secretary Larry Summers have been duking it out on the blogosphere about secular stagnation.  In layman's terms, both are attempting to describe why does the US Recovery from the Great Recession feel so sluggish.

Although the overall collapse in REAL GDP was relatively shallow  (-3.1% from peak to trough in real terms and -0.4% in nominal terms) and took place over two years (2008 to 2009), the recovery in the five years since then has been very anemic.  The economy reached parity with its pre-recession peak GDP in nominal terms in 2010, only three years after the Great Recession started in December 2007.   In real terms, it took an additional year, by 2011, to reach parity with its pre-recession peak.  By the 2nd Qtr of 2016, the US economy is only 27.87% larger, in nominal terms, than the bottom in 2009, averaging only 3.57% growth every year since the Great Recession bottomed out. In real terms, the US economy is only 15.61% larger than the bottom in 2009, averaging only 2.09% growth every year since 2009.

The overall economic contraction during the Great Depression was much more severe (-46% in nominal terms and -27% in real terms from peak to trough) and took much longer (four years from 1930 to 1933).  In real terms, economic parity with its pre-depression peak was only reached in 1936, seven years after the start of the Great Depression. Despite the severity and depth of the economic contraction, it only took three years after the 1933 bottom for the US economy to reach parity (in real terms) with pre-depression peak in 1929.  Recovery, in terms of economic growth rates, was a lot more robust, averaging 10.9% annually during this period.  In the four years since the US economy bottomed out in 1933, the US economy was 43.5% larger than the bottom in 1933, averaging 9.44% growth per year every year. In nominal terms, the US economy only recovered its pre-depression peak only sometime in 1941, when WWII spending began in earnest.

Great Depression vs. Great Recession



Source: www.worldbank.org, www.bea.gov, Reinhart and Rogoff, "This Time is Different"

Great Depression vs. Great Recession GDP Growth Rates - Updated As of First Quarter 2016

In March 2015, two illustrious economists, both Former Fed Chairman Ben Bernanke and Former Treasury Secretary Larry Summers have been duking it out on the blogosphere about secular stagnation.  In layman's terms, both are attempting to describe why does the US Recovery from the Great Recession feel so sluggish.

Although the overall collapse in REAL GDP was relatively shallow  (-3.1% from peak to trough in real terms and -0.4% in nominal terms) and took place over two years (2008 to 2009), the recovery in the five years since then has been very anemic.  The economy reached parity with its pre-recession peak GDP in nominal terms in 2010, only three years after the Great Recession started in December 2007.   In real terms, it took an additional year, by 2011, to reach parity with its pre-recession peak.  By the 1st Qtr of 2016, the US economy is only 26.37% larger, in nominal terms, than the bottom in 2009, averaging only 3.40% growth every year since the Great Recession bottomed out. In real terms, the US economy is only 16.52% larger than the bottom in 2009, averaging only 2.21% growth every year since 2009.

The overall economic contraction during the Great Depression was much more severe (-46% in nominal terms and -27% in real terms from peak to trough) and took much longer (four years from 1930 to 1933).  In real terms, economic parity with its pre-depression peak was only reached in 1936, seven years after the start of the Great Depression. Despite the severity and depth of the economic contraction, it only took three years after the 1933 bottom for the US economy to reach parity (in real terms) with pre-depression peak in 1929.  Recovery, in terms of economic growth rates, was a lot more robust, averaging 10.9% annually during this period.  In the four years since the US economy bottomed out in 1933, the US economy was 43.5% larger than the bottom in 1933, averaging 9.44% growth per year every year. In nominal terms, the US economy only recovered its pre-depression peak only sometime in 1941, when WWII spending began in earnest.

Great Depression vs. Great Recession


Source: www.worldbank.org, www.bea.gov, Reinhart and Rogoff, "This Time is Different"

Great Depression vs. Great Recession: Unemployment - Updated March 2016

The reported unemployment rate during the Great Depression was significantly higher than the reported unemployment rates of the Great Recession.

But are the two rates comparable? Before 1938, children were a significant part of the labor force.  In 1900, children younger than sixteen made up as much as eighteen percent of the labor force.  It was only when the Fair Labor Standards Act of 1938 became law that children younger than sixteen were barred from working in manufacturing and mining but not agriculture.

To make the numbers more comparable, it is better to get the ratio of Employment to the Total Population (which includes children). When we do this, the two measures are not so far apart.  In 1929, the year "0" for the Great Depression, 54.41% of the total population was employed.  By 1933, year "4", only 41.97% of the population was employed. But the rise in employment was dramatic.  Four years later, 47.63% of the population was employed, almost six percentage points higher. The employment momentum only stalled when the tax hikes of 1937 induced another recession in 1938 and new child labor laws barred children from the labor force.  If the momentum had continued, the employment ratio would have recovered in less than five years.




In 2007, the year "0" of the Great Recession, 48.38% of the population was employed.   Four years later, only 44.82% of the population was employed, a drop of less than 4 percentage points.  By March 2016 or four years after the Great Recession bottomed out, only 46.70% of the population is employed, an increase of only 2.01% percentage points.  The growth rate of employment was less than a third that of the Great Depression.  At this rate, it will take four more years or 2020 before employment recovers to that of Year "0".

Great Depression vs. Great Recession


Sources: www.worldbank.org, www.bea.gov, www.bls.gov,  Reinhart and Rogoff, "This Time is Different"

Great Depression vs. Great Recession: Unemployment - Updated February 2016

The reported unemployment rate during the Great Depression was significantly higher than the reported unemployment rates of the Great Recession.

But are the two rates comparable? Before 1938, children were a significant part of the labor force.  In 1900, children younger than sixteen made up as much as eighteen percent of the labor force.  It was only when the Fair Labor Standards Act of 1938 became law that children younger than sixteen were barred from working in manufacturing and mining but not agriculture.

To make the numbers more comparable, it is better to get the ratio of Employment to the Total Population (which includes children). When we do this, the two measures are not so far apart.  In 1929, the year "0" for the Great Depression, 54.41% of the total population was employed.  By 1933, year "4", only 41.97% of the population was employed. But the rise in employment was dramatic.  Four years later, 47.63% of the population was employed, almost six percentage points higher. The employment momentum only stalled when the tax hikes of 1937 induced another recession in 1938 and new child labor laws barred children from the labor force.  If the momentum had continued, the employment ratio would have recovered in less than five years.



In 2007, the year "0" of the Great Recession, 48.38% of the population was employed.   Four years later, only 44.82% of the population was employed, a drop of less than 4 percentage points.  By February 2016 or four years after the Great Recession bottomed out, only 46.76% of the population is employed, an increase of only 2.07% percentage points.  The growth rate of employment was less than a third that of the Great Depression.  At this rate, it will take four more years or 2020 before employment recovers to that of Year "0".

Great Depression vs. Great Recession


Source: www.worldbank.org, www.bea.gov, www.bls.gov,  Reinhart and Rogoff, "This Time is Different"

Great Depression vs. Great Recession: Unemployment - Updated January 2016

The reported unemployment rate during the Great Depression was significantly higher than the reported unemployment rates of the Great Recession.

But are the two rates comparable? Before 1938, children were a significant part of the labor force.  In 1900, children younger than sixteen made up as much as eighteen percent of the labor force.  It was only when the Fair Labor Standards Act of 1938 became law that children younger than sixteen were barred from working in manufacturing and mining but not agriculture.

To make the numbers more comparable, it is better to get the ratio of Employment to the Total Population (which includes children). When we do this, the two measures are not so far apart.  In 1929, the year "0" for the Great Depression, 54.41% of the total population was employed.  By 1933, year "4", only 41.97% of the population was employed. But the rise in employment was dramatic.  Four years later, 47.63% of the population was employed, almost six percentage points higher. The employment momentum only stalled when the tax hikes of 1937 induced another recession in 1938 and new child labor laws barred children from the labor force.  If the momentum had continued, the employment ratio would have recovered in less than five years.


In 2007, the year "0" of the Great Recession, 48.38% of the population was employed.   Four years later, only 44.82% of the population was employed, a drop of less than 4 percentage points.  By January 2016 or four years after the Great Recession bottomed out, only 46.62% of the population is employed, an increase of only 1.93% percentage points.  The growth rate of employment was less than a third that of the Great Depression.  At this rate, it will take five more years or 2021 before employment recovers to that of Year "0".

Great Depression vs. Great Recession

Source: www.worldbank.org, www.bea.gov, Reinhart and Rogoff, "This Time is Different"

Great Depression vs. Great Recession: Unemployment - Updated December 2015

The reported unemployment rate during the Great Depression was significantly higher than the reported unemployment rates of the Great Recession.

But are the two rates comparable? Before 1938, children were a significant part of the labor force.  In 1900, children younger than sixteen made up as much as eighteen percent of the labor force.  It was only when the Fair Labor Standards Act of 1938 became law that children younger than sixteen were barred from working in manufacturing and mining but not agriculture.

To make the numbers more comparable, it is better to get the ratio of Employment to the Total Population (which includes children). When we do this, the two measures are not so far apart.  In 1929, the year "0" for the Great Depression, 54.41% of the total population was employed.  By 1933, year "4", only 41.97% of the population was employed. But the rise in employment was dramatic.  Four years later, 47.63% of the population was employed, almost six percentage points higher. The employment momentum only stalled when the tax hikes of 1937 induced another recession in 1938 and new child labor laws barred children from the labor force.  If the momentum had continued, the employment ratio would have recovered in less than five years.


In 2007, the year "0" of the Great Recession, 48.38% of the population was employed.   Four years later, only 44.82% of the population was employed, a drop of less than 4 percentage points.  By December 2015 or four years after the Great Recession bottomed out, only 46.45% of the population is employed, an increase of only 1.63% percentage points.  The growth rate of employment was less than a third that of the Great Depression.  At this rate, it will take five more years before employment recovers to that of Year "0".

Great Depression vs. Great Recession

Source: www.worldbank.org, www.bea.gov, Reinhart and Rogoff, "This Time is Different"

Great Depression vs. Great Recession: Unemployment - Updated November 2015

The reported unemployment rate during the Great Depression was significantly higher than the reported unemployment rates of the Great Recession.

But are the two rates comparable? Before 1938, children were a significant part of the labor force.  In 1900, children younger than sixteen made up as much as eighteen percent of the labor force.  It was only when the Fair Labor Standards Act of 1938 became law that children younger than sixteen were barred from working in manufacturing and mining but not agriculture.

To make the numbers more comparable, it is better to get the ratio of Employment to the Total Population (which includes children). When we do this, the two measures are not so far apart.  In 1929, the year "0" for the Great Depression, 54.41% of the total population was employed.  By 1933, year "4", only 41.97% of the population was employed. But the rise in employment was dramatic.  Four years later, 47.63% of the population was employed, almost six percentage points higher. The employment momentum only stalled when the tax hikes of 1937 induced another recession in 1938 and new child labor laws barred children from the labor force.  If the momentum had continued, the employment ratio would have recovered in less than five years.

In 2007, the year "0" of the Great Recession, 48.38% of the population was employed.   Four years later, only 44.82% of the population was employed, a drop of less than 4 percentage points.  By November 2015 or four years after the Great Recession bottomed out, only 46.35% of the population is employed, an increase of only 1.53% percentage points.  The growth rate of employment was less than a third that of the Great Depression.  At this rate, it will take five more years before employment recovers to that of Year "0".

Great Depression vs. Great Recession

Source: www.worldbank.org, www.bea.gov, Reinhart and Rogoff, "This Time is Different"

Great Depression vs. Great Recession GDP Growth Rates - Updated As of Third Quarter 2015

In March 2015, two illustrious economists, both Former Fed Chairman Ben Bernanke and Former Treasury Secretary Larry Summers have been duking it out on the blogosphere about secular stagnation.  In layman's terms, both are attempting to describe why does the US Recovery from the Great Recession feel so sluggish.

Although the overall collapse in REAL GDP was relatively shallow  (-3.1% from peak to trough in real terms and -0.4% in nominal terms) and took place over two years (2008 to 2009), the recovery in the five years since then has been very anemic.  The economy reached parity with its pre-recession peak GDP in nominal terms in 2010, only three years after the Great Recession started in December 2007.   In real terms, it took an additional year, by 2011, to reach parity with its pre-recession peak.  By 2014, the US economy is only 20.81% larger, in nominal terms, than the bottom in 2009, averaging only 3.85% growth every year since the Great Recession bottomed out. In real terms, the US economy is only 11.56% larger than the bottom in 2009, averaging only 2.21% growth every year since 2009.

The overall economic contraction during the Great Depression was much more severe (-46% in nominal terms and -27% in real terms from peak to trough) and took much longer (four years from 1930 to 1933).  In real terms, economic parity with its pre-depression peak was only reached in 1936, seven years after the start of the Great Depression. Despite the severity and depth of the economic contraction, it only took three years after the 1933 bottom for the US economy to reach parity (in real terms) with pre-depression peak in 1929.  Recovery, in terms of economic growth rates, was a lot more robust, averaging 10.9% annually during this period.  In the four years since the US economy bottomed out in 1933, the US economy was 43.5% larger than the bottom in 1933, averaging 9.44% growth per year every year. In nominal terms, the US economy only recovered its pre-depression peak only sometime in 1941, when WWII spending began in earnest.

Source: www.worldbank.org, www.bea.gov, Reinhart and Rogoff: "This Time is Different"


Given this very sluggish recovery with no end in sight, it is no wonder that Ben Bernanke, who is only 60, said that he doesn't expect the price of money (interest rates) to rise in to its long-term average of around 4 percent in his lifetime.