June 25, 2018
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Recession: How Deep?

Russian novelist Leo Tolstoy’s oft-quoted line, “Happy families are all alike; every unhappy family is unhappy in its own way,” might be applied to economic recessions. The current unhappy period of declining employment and productivity is different from its three predecessors, according to Charles Colgan of the Muskie School for Public Policy.

Mr. Colgan, a former state economist, spoke Monday at the Maine Center for Economic Policy’s “Stimulating the Maine Economy” conference in Augusta. In answering the most pressing question — how long and how deep will this recession be? — Mr. Colgan pointed to the calendar.

January, he said, “is the hinge of fate.” If signs begin to show a moderation of conditions, as he expects, job growth could return in the first quarter or second quarter of 2010. That benchmark is no small accomplishment, given that the U.S. economy lost 1 million jobs in November and December, Mr. Colgan said.

A graph he showed that tracked total employment in Maine from 1970 to 2007 suggested that even when times were good, they weren’t as good as they seemed. In the 1970s, total employment in Maine was just under 400,000. By 1985, it had grown to 500,000 jobs, and in the 1990s, after a dip below 500,000 during the 1990-1991 recession, total jobs then approached 600,000.

But throughout the first decade of this century, Mr. Colgan said, “we never got above the trend,” which is the average increase in jobs expected based on nearly 40 years of history. Of course, the U.S. economy did not see job growth above the trend line during this decade either. Total jobs in Maine stand at about 620,000 today.

The three most recent recessions, as they played out in Maine, help inform Mr. Colgan’s predictions for the current recession. The three key assessments he used in measuring the other recessions are: the percentage of employment change, from peak to trough; the number of quarters (three-month periods) it took to hit the bottom; and the number of quarters it took to achieve recovery.

In Maine, the 1980-1983 recession saw a 1.6 percent drop in employment, and it took nine quarters to get to the bottom, and six to recover. In the 1990-1991 recesssion, the gap between peak and trough employment was a whopping 7 percent. It took eight quarters to find the bottom, and 20 quarters to climb back to full recovery. The 2001 recession saw a job loss of just 0.9 percent, and four quarters of declining growth and eight quarters to get to recovery.

Mr. Colgan believes the current recession has lasted one or two quarters, but may have as many as nine quarters to go before reaching bottom. Recovery will take eight quarters, he believes.

The 2001 recession came when the tech bubble burst, but the other recessions had ties to over heated housing markets. The current recession has ties to housing, but in a different way. As Mr. Colgan said, people had been living on money they took from “the ATM in our houses,” meaning growing equity.

Though easier said than achieved, prosperity must no longer be measured by the value of our homes, but by the size — and the number, collectively — of our paychecks.

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