April 6, 2011
Where Are We in the Recovery from
the Great Recession?
Mark Watson
Professor of Economics and Public Affairs, Princeton University
Minutes of the 25th Meeting of the 69th Year
President Bob Varrin opened the meeting at 10:15 a.m. in the Convocation Room of the Friend Center following the Hospitality Hour. Attendance was 108. After the invocation, Roland Miller read the minutes of the March 30 meeting. Ruth Miller, Lanny Jones, and Claire Jacobus presented guests Bernie Miller, Michael Mathews, and Katherine Kish respectively.
Ruth Miller introduced the speaker, Mark W. Watson, Professor of Economics and Public Affairs at Princeton and Research Associate at the National Bureau of Economic Research. Also a fellow of the American Society of Arts and Sciences and the Econometric Society with research focus on econometrics and macroeconomic forecasting, he has served as a consultant to the Federal Reserve Banks of Chicago and Richmond. The topic of his talk was “Where We Are in the Recovery from the Great Recession.”
Although Professor Watson spent a good deal of time trying to convince us that econometrics is an extraordinarily boring subject that regularly puts a whole classroom full of his post-luncheon students to sleep, the lecture turned out to be an interesting lesson in what might be called economic topography. A succession of graphs exhibited the hills and valleys of markers such as GDP, industrial production, employment, consumption, inflation, the S&P 500, housing sales, and oil prices. Many of these showed a fairly rounded maximum at the official beginning of the recession at the end of 2007 and a similarly rounded minimum at its presumed end around June of 2009. There were exceptions, the trace of the S&P 500, for example, presenting a sharp peak in November, 2007, and its mirror-image, riverine-like valley, in early 2009, the two looking like daggers to the heart, the first saying, “Why didn’t I sell?” and the second, “Why didn’t I buy?” And employment and housing prices, both exhibiting steep declines, have barely inched above their lows. Employment, a lagging indicator, tracked the beginning of the recession well, but hit its lowest point about seven months after its official end in mid-2009. Since recovery of employment did lag recovery of production, this means that productivity grew, good for efficient use of resources, bad for the worker who lost his job. Housing prices started their downward trend before the recession, in early 2006, and, after a 1-year- plateau, began their very steep decline around the beginning of 2007.
The severity of the slow-down in terms of loss of GDP compared to what, on average, it would have been, was $2.7 trillion, or $8,500 per capita. This compares to a per capita loss of $5,200 for the two 1980’s recessions together.
Using the same set of parameters, Professor Watson compared the Great Recession with others that have occurred since 1975. Generally, the comparison showed that the designation “Great Recession” is deserved. An exception is the parameter of unemployment, which peaked higher during the Reagan administration but descended faster.
A final comparison with the past went back to 1930 and shows, in terms of GDP, how terribly severe thesetback of the early 1930’s was, as well as, surprisingly to me, the early post-World War II recession.
With respect to the next two years, Dr. Watson foresaw modest GDP and consumption growth, slow reduction in unemployment to about 8.2% by the end of 2012, and, the good news, very small increases in core inflation and little likelihood of the real bugbear, deflation.
Respectfully Submitted,
Jerry Berkelhammer
Ruth Miller introduced the speaker, Mark W. Watson, Professor of Economics and Public Affairs at Princeton and Research Associate at the National Bureau of Economic Research. Also a fellow of the American Society of Arts and Sciences and the Econometric Society with research focus on econometrics and macroeconomic forecasting, he has served as a consultant to the Federal Reserve Banks of Chicago and Richmond. The topic of his talk was “Where We Are in the Recovery from the Great Recession.”
Although Professor Watson spent a good deal of time trying to convince us that econometrics is an extraordinarily boring subject that regularly puts a whole classroom full of his post-luncheon students to sleep, the lecture turned out to be an interesting lesson in what might be called economic topography. A succession of graphs exhibited the hills and valleys of markers such as GDP, industrial production, employment, consumption, inflation, the S&P 500, housing sales, and oil prices. Many of these showed a fairly rounded maximum at the official beginning of the recession at the end of 2007 and a similarly rounded minimum at its presumed end around June of 2009. There were exceptions, the trace of the S&P 500, for example, presenting a sharp peak in November, 2007, and its mirror-image, riverine-like valley, in early 2009, the two looking like daggers to the heart, the first saying, “Why didn’t I sell?” and the second, “Why didn’t I buy?” And employment and housing prices, both exhibiting steep declines, have barely inched above their lows. Employment, a lagging indicator, tracked the beginning of the recession well, but hit its lowest point about seven months after its official end in mid-2009. Since recovery of employment did lag recovery of production, this means that productivity grew, good for efficient use of resources, bad for the worker who lost his job. Housing prices started their downward trend before the recession, in early 2006, and, after a 1-year- plateau, began their very steep decline around the beginning of 2007.
The severity of the slow-down in terms of loss of GDP compared to what, on average, it would have been, was $2.7 trillion, or $8,500 per capita. This compares to a per capita loss of $5,200 for the two 1980’s recessions together.
Using the same set of parameters, Professor Watson compared the Great Recession with others that have occurred since 1975. Generally, the comparison showed that the designation “Great Recession” is deserved. An exception is the parameter of unemployment, which peaked higher during the Reagan administration but descended faster.
A final comparison with the past went back to 1930 and shows, in terms of GDP, how terribly severe thesetback of the early 1930’s was, as well as, surprisingly to me, the early post-World War II recession.
With respect to the next two years, Dr. Watson foresaw modest GDP and consumption growth, slow reduction in unemployment to about 8.2% by the end of 2012, and, the good news, very small increases in core inflation and little likelihood of the real bugbear, deflation.
Respectfully Submitted,
Jerry Berkelhammer