Should We Classify GDP Recessions and Jobs Recessions Separately?

Posted Tuesday, March 02 2010

I discovered something this weekend. Well, discovered is probably the wrong word since the data wasn't exactly hiding, but regardless, it was news to me to learn that the US experienced GDP growth throughout the 2001 recession. It's not stunning growth, but the chart below certainly shows growth during what we usually consider an economic decline. The official recession is marked in gray.

Real GDP from 2000-2004

So what is a recession if not a decline in GDP? NBER — the organization responsible for determining periods of recession — calls real GDP "the single best measure of aggregate economic activity."¹ If that's the case, how did we end up calling the period from March to November of 2001 an economic recession? It turns out that NBER does not use GDP exclusively in determining recessions.² GDP data is released quarterly and is subject to revisions which are sometimes significant. While it might be the best indicator, it's not timely enough to be used for real-time determination of econonic activity. NBER uses a handful of monthly metrics (e.g. personal income, employment, industrial production and sales) to arrive at its official determination of recession. Of the four, they suggest that "employment is probably the single most reliable indicator."³ The next chart show total non-farm employment during the 2001 recession. I've highlighted the peak to trough employment period in red.

Total Employment from 2000-2004

The chart shows that peak employment lines up with the start of the recession quite well. However, employment continued to decline for more than a year and a half after the end of the recession.⁴

So the two best economy wide metrics paint significantly different pictures of the health of the economy. What is the typical beavhior of these two metrics in a recession then? To learn this, and to understand the concept of recession better in general, I decided to look at all the previous modern recessions in terms of GDP and employment. Modern is my own term here; I'm using it to mean recessions since 1970. Let's step through the decades briefly.   [ harps play... ]

1970s

The 1970s saw two recessions. The first began in December of 1969 and ended in November of 1970. The second started in November of 1973 following the Arab oil embargo and ended 16 months later in March of 1975. GDP and employment experienced declines during both of these recessions. Interestingly, if you take the union of the decline months (i.e. GDP is in decline OR employment is in decline), you very nearly approximate both recessions' official start and end dates.

Real GDP and Recession in the 1970s

Employment and Recession in the 1970s

1980s

The 1980s also had two recessions — these nearly back to back. The first recession began in January 1980 and ended in July of the same year. The next recession started exactly a year later in July of 1981 and ended 16 months later in November of 1982. As they did in the 1970s, GDP and employment both declined during the official recession. And again, a union of the GDP and employment months from peak to trough roughly approximates the official recession start and end dates.

Real GDP and Recession in the 1980s

Employment and Recession in the 1980s

1990s

There was only one recession in the 90s — from July 1990 to March 1991. As in prior decades, GDP and employment both declined over the period of recession. And for a third time, the union of GDP and employment decline months did a good job of bounding the official recession. There was, however, a significant period after the recession ended, from March 1991 to May 1992, where employment grew very, very slowly. Prior recessions had seen a return to solid growth in both GDP and employment at the end of their term, but the 90s recession showed a considerable lag in employment growth upon GDP's return to expansion. This, of course, foreshadows the complete decoupling of GDP and employment which we saw in the 2001 recession.

Real GDP and Recession in the 1990s

Employment and Recession in the 1990s

2000s

So here again we see the 2001 recession as well as the current recession which began in December of 2007. We now understand that a period of GDP growth during a recession, as occurred 2001, is not typical. The current recession, unlike the 2001 recession, includes a notable decline in real GDP. But as of June 2009, GDP looks to have returned to growth. Employment, however, continues to decline and has hit a new low as of January of 2010.

While a bit tangential, it's worth noting that total employment in January of 2010 is now below both the trough of the 2001 recession and the total employment level at the start of the decade. Ouch.

Real GDP and Recession in the 2000s

Employment and Recession in the 2000s

So looking at GDP and employment independently helps separate the components of recession, but it doesn't really clarify the issue of dating official recessions — especially recent ones. If contemporary recessions continue to have distinct behaviors in their GDP and employment components, perhaps it's best to break those components out instead of rolling them into one event we call recession which describes neither component fully. The NBER is constrained to label these varying periods as one event, but the rest of us can make as many distinctions as we like. Towards that end, I've enumerated the periods of GDP recessions, jobs recessions, the union and intersection of GDP and jobs recessions and finally NBER's official recessions in the following excessive, dot-filled table.

A comparison of NBER, GDP and Jobs recessions

Date	NBER Recession	GDP Recession	Jobs Recession	Union GDP & Jobs Recession	Intersection GDP & Jobs Recession
01/1969
02/1969
03/1969
04/1969
05/1969
06/1969
07/1969
08/1969
09/1969		•		•
10/1969		•		•
11/1969		•		•
12/1969	•	•		•
01/1970	•	•		•
02/1970	•	•		•
03/1970	•	•	•	•	•
04/1970	•	•	•	•	•
05/1970	•	•	•	•	•
06/1970	•	•	•	•	•
07/1970	•	•	•	•	•
08/1970	•	•	•	•	•
09/1970	•	•	•	•	•
10/1970	•	•	•	•	•
11/1970	•	•	•	•	•
12/1970		•		•
01/1971
02/1971
03/1971
04/1971
05/1971
06/1971
07/1971
08/1971
09/1971
10/1971
11/1971
12/1971
01/1972
02/1972
03/1972
04/1972
05/1972
06/1972
07/1972
08/1972
09/1972
10/1972
11/1972
12/1972
01/1973
02/1973
03/1973
04/1973
05/1973
06/1973
07/1973
08/1973
09/1973
10/1973
11/1973	•
12/1973	•	•		•
01/1974	•	•		•
02/1974	•	•		•
03/1974	•	•		•
04/1974	•	•		•
05/1974	•	•		•
06/1974	•	•		•
07/1974	•	•	•	•	•
08/1974	•	•	•	•	•
09/1974	•	•	•	•	•
10/1974	•	•	•	•	•
11/1974	•	•	•	•	•
12/1974	•	•	•	•	•
01/1975	•	•	•	•	•
02/1975	•	•	•	•	•
03/1975	•	•	•	•	•
04/1975			•	•
05/1975
06/1975
07/1975
08/1975
09/1975
10/1975
11/1975
12/1975
01/1976
02/1976
03/1976
04/1976
05/1976
06/1976
07/1976
08/1976
09/1976
10/1976
11/1976
12/1976
01/1977
02/1977
03/1977
04/1977
05/1977
06/1977
07/1977
08/1977
09/1977
10/1977
11/1977
12/1977
01/1978
02/1978
03/1978
04/1978
05/1978
06/1978
07/1978
08/1978
09/1978
10/1978
11/1978
12/1978
01/1979
02/1979
03/1979
04/1979
05/1979
06/1979
07/1979
08/1979
09/1979
10/1979
11/1979
12/1979
01/1980	•
02/1980	•
03/1980	•	•	•	•	•
04/1980	•	•	•	•	•
05/1980	•	•	•	•	•
06/1980	•	•	•	•	•
07/1980	•	•	•	•	•
08/1980		•		•
09/1980		•		•
10/1980
11/1980
12/1980
01/1981
02/1981
03/1981
04/1981
05/1981
06/1981
07/1981	•		•	•
08/1981	•		•	•
09/1981	•	•	•	•	•
10/1981	•	•	•	•	•
11/1981	•	•	•	•	•
12/1981	•	•	•	•	•
01/1982	•	•	•	•	•
02/1982	•	•	•	•	•
03/1982	•	•	•	•	•
04/1982	•		•	•
05/1982	•		•	•
06/1982	•		•	•
07/1982	•		•	•
08/1982	•		•	•
09/1982	•		•	•
10/1982	•		•	•
11/1982	•		•	•
12/1982			•	•
01/1983
02/1983
03/1983
04/1983
05/1983
06/1983
07/1983
08/1983
09/1983
10/1983
11/1983
12/1983
01/1984
02/1984
03/1984
04/1984
05/1984
06/1984
07/1984
08/1984
09/1984
10/1984
11/1984
12/1984
01/1985
02/1985
03/1985
04/1985
05/1985
06/1985
07/1985
08/1985
09/1985
10/1985
11/1985
12/1985
01/1986
02/1986
03/1986
04/1986
05/1986
06/1986
07/1986
08/1986
09/1986
10/1986
11/1986
12/1986
01/1987
02/1987
03/1987
04/1987
05/1987
06/1987
07/1987
08/1987
09/1987
10/1987
11/1987
12/1987
01/1988
02/1988
03/1988
04/1988
05/1988
06/1988
07/1988
08/1988
09/1988
10/1988
11/1988
12/1988
01/1989
02/1989
03/1989
04/1989
05/1989
06/1989
07/1989
08/1989
09/1989
10/1989
11/1989
12/1989
01/1990
02/1990
03/1990
04/1990
05/1990
06/1990		•	•	•	•
07/1990	•	•	•	•	•
08/1990	•	•	•	•	•
09/1990	•	•	•	•	•
10/1990	•	•	•	•	•
11/1990	•	•	•	•	•
12/1990	•	•	•	•	•
01/1991	•	•	•	•	•
02/1991	•	•	•	•	•
03/1991	•	•	•	•	•
04/1991			•	•
05/1991			•	•
06/1991
07/1991
08/1991
09/1991
10/1991
11/1991
12/1991
01/1992
02/1992
03/1992
04/1992
05/1992
06/1992
07/1992
08/1992
09/1992
10/1992
11/1992
12/1992
01/1993
02/1993
03/1993
04/1993
05/1993
06/1993
07/1993
08/1993
09/1993
10/1993
11/1993
12/1993
01/1994
02/1994
03/1994
04/1994
05/1994
06/1994
07/1994
08/1994
09/1994
10/1994
11/1994
12/1994
01/1995
02/1995
03/1995
04/1995
05/1995
06/1995
07/1995
08/1995
09/1995
10/1995
11/1995
12/1995
01/1996
02/1996
03/1996
04/1996
05/1996
06/1996
07/1996
08/1996
09/1996
10/1996
11/1996
12/1996
01/1997
02/1997
03/1997
04/1997
05/1997
06/1997
07/1997
08/1997
09/1997
10/1997
11/1997
12/1997
01/1998
02/1998
03/1998
04/1998
05/1998
06/1998
07/1998
08/1998
09/1998
10/1998
11/1998
12/1998
01/1999
02/1999
03/1999
04/1999
05/1999
06/1999
07/1999
08/1999
09/1999
10/1999
11/1999
12/1999
01/2000
02/2000
03/2000
04/2000
05/2000
06/2000
07/2000
08/2000
09/2000
10/2000
11/2000
12/2000
01/2001
02/2001			•	•
03/2001	•		•	•
04/2001	•		•	•
05/2001	•		•	•
06/2001	•		•	•
07/2001	•		•	•
08/2001	•		•	•
09/2001	•		•	•
10/2001	•		•	•
11/2001	•		•	•
12/2001			•	•
01/2002			•	•
02/2002			•	•
03/2002			•	•
04/2002			•	•
05/2002			•	•
06/2002			•	•
07/2002			•	•
08/2002			•	•
09/2002			•	•
10/2002			•	•
11/2002			•	•
12/2002			•	•
01/2003			•	•
02/2003			•	•
03/2003			•	•
04/2003			•	•
05/2003			•	•
06/2003			•	•
07/2003			•	•
08/2003			•	•
09/2003
10/2003
11/2003
12/2003
01/2004
02/2004
03/2004
04/2004
05/2004
06/2004
07/2004
08/2004
09/2004
10/2004
11/2004
12/2004
01/2005
02/2005
03/2005
04/2005
05/2005
06/2005
07/2005
08/2005
09/2005
10/2005
11/2005
12/2005
01/2006
02/2006
03/2006
04/2006
05/2006
06/2006
07/2006
08/2006
09/2006
10/2006
11/2006
12/2006
01/2007
02/2007
03/2007
04/2007
05/2007
06/2007
07/2007
08/2007
09/2007
10/2007
11/2007
12/2007	•		•	•
01/2008	•		•	•
02/2008	•		•	•
03/2008	•		•	•
04/2008	•		•	•
05/2008	•		•	•
06/2008	•	•	•	•	•
07/2008	•	•	•	•	•
08/2008	•	•	•	•	•
09/2008	•	•	•	•	•
10/2008	•	•	•	•	•
11/2008	•	•	•	•	•
12/2008	•	•	•	•	•
01/2009	•	•	•	•	•
02/2009	•	•	•	•	•
03/2009	•	•	•	•	•
04/2009	•	•	•	•	•
05/2009	•	•	•	•	•
06/2009	•	•	•	•	•
07/2009	•		•	•
08/2009	•		•	•
09/2009	•		•	•
10/2009	•		•	•
11/2009	•		•	•
12/2009	•		•	•

Conclusion

In practice, NBER seems to try to strike a balance between GDP and jobs when determining recession start and end dates. Resolving recessions into GDP and jobs components may give us a clearer picture of where the economy is actually encountering difficulty than a composite measure. Additionally, GDP and jobs recessions can be more easily defined while official recessions seem to require a non trivial amount of interpretation⁵ — especially when the component parts exhibit different behavior. As we start to think about the end date for the current recession, it's likely that we will again see different responses in GDP and employment. Looking at those metrics separately should prove useful in understanding the economy's overall health even after this recession officially ends.

Update: It seems worthwhile to continue to track the GDP and employment trends for the current recession. I'll have a page up in the next few days that will be updated monthly with the latest data. Check back soon. NBER, GDP and Jobs Recession tracking.