Checking in on Financial Crises Recoveries

UPDATE: The following graph is an update with U.S. employment data through November 2013. The remainder of the post is as previously published in September, 2012.

Seeing that it has been a year since the update to Carmen Reinhart and Kenneth Rogoff’s great work on financial crises, I thought it would be a good idea to check in on how the U.S. is doing relative to these other historical crises.

First, the Great Recession is the clearly the worst post-World War II business cycle in the U.S. as evident by comparing job losses.

However, when the Great Recession is compared not to other U.S. cycles but to the Big 5 financial crises and the U.S. Great Depression (thanks to U.S. Treasury for adding that to the graph), the current cycle actually compares pretty favorably. This is likely due to the coordinated global response to the immediate crises in late 2008 and early 2009. While the initial path of both the global and U.S. economies in 2008 and 2009 effectively matched the early years of the Great Depression – or worse – the strong policy response employed by nearly all major economies – both monetary and fiscal – helped stop the economic free fall.

Finally, the last graph is a new one and compares unemployment rates across these same crises. While the current U.S. cycle rate effectively doubled from 4.5% to 10.0%, many other crises’ gains were even larger. In fact, the percentage increase, as opposed to percentage point increase, in the unemployment rate for all crises except Japan were larger than the U.S. Great Recession. Even Norway’s unemployment rate which topped out at just over 6% represented a near tripling of the pre-crisis rate of 2.1%. Note that the unemployment rate peak used here is the 12 month average preceding each crisis.

For the full comparison please see the previous post which details housing prices, equity prices, real GDP and government debt.