Unemployment: Then (1982) And Now

Fed Chairman Ben Bernanke commented today that he was concerned that the recovery will not be strong enough to support job growth next year.

While the current recession in the United States has yet to be declared over by the Nation Bureau of Economic Research, GDP growth resumed in the third quarter of this year.  Unfortunately, it may be some time before that growth translates to recovery in the job market.  The headline unemployment rate broke into the double digits in October, reaching 10.2%.  Since WWII, the only recession that generated double-digit unemployment was the so-called Volker Recession, which officially lasted from December of 1980 to November of 1982.  The chart below shows the unemployment rate for 48 months from the start of that recession and the numbers so far for the present downturn.”

In the current recession, which officially began in December of 2007, employment reached the double digits in the 23rd month.  Similarly, in the Volker Recession unemployment his 10.1% in the 22nd month of the recession.  The Volker Recession was declared to have ended two months later, and the unemployment rate began its decline two months after that.  Unemployment did not reach its pre-recession level until May of 1984, about a year- and-a-half after the recession had come to an end.  If we were to use the Volker Recession as a proxy, we would expect unemployment to remain high for years to come.  However, the speed with which unemployment reached its current levels give us reason to believe that the employment situation may remain high considerably longer.  The chart below shows how high unemployment was during each recession over the month before the recessions officially got under way.

By this measure it is clear that our current recession has been far more jarring than the one in the early 1980’s.  While the 1980’s recession cause the result of aggressive tightening on the part of the Federal Reserve, the current one persists despite the central bank’s best efforts.  Today, the Federal Reserve approaching the point where it will begin to wind down its market support programs, and Congress so far has not enacted additional fiscal stimulus beyond the $787 billion approved earlier this year.  While the unemployment growth may slow shortly after the recession has official come to an end, it has much ground to cover before it reaches its pre-recession level.

Garrett W. McIntyre