Putting the Recession in Perspective

"There is nothing typical about a typical recession. They're all unique," said Bill Strauss, senior economist and economic advisor for the Federal Reserve Bank of Chicago, during Heavy Duty Dialogue '09 last week.

The annual event, sponsored by the Heavy Duty Manufacturers Association the day before Heavy Duty Aftermarket Week, is a business conference for the commercial vehicle supplier industry, offering information on industry and market trends, forecasts, and strategy.

Strauss pointed out that people often think the definition of a recession is two consecutive quarters of negative GDP growth. "That's absolutely not true," he said. For instance, during the recession in 2001, we had three negative quarters, but none of them were consecutive. And in our current recession, during the first two quarters of the recession, GDP actually went up, significantly in the second quarter.

Strauss said a "blue chip panel" of 50 top forecasting economists surveyed recently expect first quarter 2009 GDP growth to end up even worse than fourth quarter 2008, with the second quarter looking a bit better, though still negative, with an upward trend during the second half of the year, but still resulting in an overall negative number for the entire year.

"So it's going to be a tough year for 2009," he said. "We're looking at a minus 1.9 percent growth rate, following -0.2 for 2008." This is the weakest growth we've seen "in many, many decades," he said.

2010 growth, however, is expected to grow at around 2.9 percent, slightly above trend.
"So the view of these economists is that we are in a business cycle. It's going to be deep and it's going to be long."

To put this recession into perspective, Strauss said, since the 1960s, the average duration of a recession has been about 11 months, with a range of six to 16 months. If this recession turns around midyear, as is being predicted, we're looking at around 18 months.

There are some bright spots, Strauss said:
* The housing crisis, which led into this recession, is much closer to the bottom than to the top, after three years of deep losses. Some analysts, he says, are expecting to see a turnaround this year.
* Lower energy prices are putting more money into consumers' pockets for discretionary spending
* Productivity still looks solid.
* The Fed has implemented very aggressive monetary policies to help turn things around.
* The fiscal stimulus package passed last year and the economic stimulus legislation recently signed into law will do their part to turn the economy around.

"Since World War II, we have grown far often more than we have gone down," Strauss said. In fact, he said, since World War II, 86 percent of the months have been growth months."People like to do business, we like to do better, and that's the driving force that has economies moving higher rather than lower."