It hasn't been a good week. From new home sales to residential housing prices to durable goods, you have to dig pretty hard to unearth a little positive spin. So, it's as good a time as any to conjure up comparisons to the last recession -- which, as reported at Economist's View and at Calculated Risk, is exactly what Evan Koenig does in an article published on the Dallas Fed website. Evan concludes:
There are several disturbing similarities between the U.S. economy's recent behavior and its behavior in 2000–01, but also some reassuring differences.
There is nothing amiss in Evan's analysis, but I like to make the comparison in a slightly different way. Let's conjecture that, if a recession is in the cards, it will arrive sometime next quarter -- say, July. To me, then, the best comparison is made by considering what the data looked like in December 2000, three months before the business cycle peak in March 2001. If we do this, the reassuring news looks considerably less so. For example, Evan says:
In 2000–01, consumption spending’s contribution to GDP growth fell by about 2 percentage points. Over the past couple of years, in contrast, consumption’s growth contribution has held comparatively steady.
True, but here is a variation on a type of picture I have shown here before:
The blue line represents the data known as December 2000 -- that is, data through the third quarter of that year. The yellow line illustrates what happened next -- which was, of course, a recession. And the red line is the data we are looking at today, through the fourth quarter of 2006. Reassuring would be if the blue line was clearly signaling some sort of weakness that the red line is not. Reassuring is not what I see.
What about employment?
It is striking that while goods-producing job growth has slowed by about as much as it did in 2000, service-providing job growth has held up much better than it did in the lead-up to the 2001 recession.
To the pictures:
If you are working at, you might find some comfort in the downward drift of employment growth leading into 2000. But there certainly was not much hint of what was about to unfold. So to me those are pretty scary pictures. In fact, just about every graph I look at gives me the willies:
Sleep tight.
UPDATE: Kash does a similar experiment, in prose, for the 1990-91 recession.