The Wilder View

Shape of the Recovery: Pathetic

On the recovery:

  • Roubini on CNBC (with video, found on Calculated Risk):”The recovery is going to be subpar,” Roubini said. “I see a one percent growth in the economy in the next few years. There will also be 11 percent unemployment next year and the recovery is going to be slow. It’s going to feel like a recession even when it ends.”
  • Dennis Lockhart (from Bloomberg): “The economy is stabilizing and recovery will begin in the second half,” Lockhart said in the text of remarks in Nashville, Tennessee. “The recovery will be weak compared with historic recoveries from recession. The recovery will be weak because the economy must make structural adjustments before the healthiest possible rate of growth can be achieved.”
  • From the Federal Reserve Bank of San Francisco (via Economist’s View): “In our view, the recovery will be painfully gradual, with the economy expanding below potential for several quarters.”

I could go on (but don’t have time this morning). The point is: the consensus view is for a more gradual recovery compared to previous recessions. So what is “gradual”?

By the way, I am also looking for statements by economists that are calling for a V-shaped recovery – please pass along links to those articles.


The chart illustrates GDP in levels (indexed to the end of the recession at 100) during the recession and recovery (the 2 years following the recession, except for 1980, which is 1.5) for all post-war recession that dropped GDP 2% or more, the Biggies. Note: the recession dates are set by the NBER.

  • The ’73-’75 recovery is often classified as U-shaped.
  • The ’81-’82 recovery is the typical V-shaped.
  • 1980 was headed toward the V, but then the economy “dipped” back into recession – the so-called W-shaped.
  • Notice that the recovery for 07-09 (provided the recession ends in Q2 09) is nothing short of pathetic. The 07-09 A recovery uses Wells Fargo’s publicly posted forecast, and is likely the L-shaped if growth rates do not surge in 2011. Even when I simulate the recovery for 3.5% annualized growth starting in Q3 2009 (07-09 B) which is above potential growth, the recovery remains very weak.

This is what they mean when they say it’s going to feel like recession, even when the economy is expanding again. The early stages of the recovery are unlikely to produce growth rates that are strong enough to bring down the unemployment rate until well into 2010. Oh man.

Originally published at News N Economics and reproduced here with the author’s permission.

4 Responses to “Shape of the Recovery: Pathetic”

AnonymousJuly 21st, 2009 at 11:02 am

I wonder why you spend time worrying about the shape of the recovery. Maybe, you should worry whether there will be a recovery at all, in the next few years. Why? More deleveraging has to happen and when that happens, who will take the haircut, and by how much? Two articles illuminate these problems:

GuestJuly 21st, 2009 at 11:47 am

“The recovery is widely predicted to be pathetic, so why is the stock market surging?”Because when a cluster of dismal scientists agree on something, they are most assuredly wrong.

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