Foundation explores recession trends
Last fall, the National Bureau of Economic Research declared the United States started into a recession in March 2001.
A 10-year expansion period preceded the latest nationwide economic downturn, marking the longest peacetime growth recorded in U.S. history.
Generally, rapid expansion and unsustainable employment growth have triggered post-war recessions in the U.S., explain Utah Foundation analysts.
But the current downturn has not resulted in dramatic employment changes and personal consumption rose faster than personal income in third quarter 2001 for the first time since the 1970s.
Special financing for vehicle purchases induced spending and consumer sentiment remained steady until Sept. 11, 2001. Following the terrorist attacks, sentiment plunged and unemployment climbed, increasing from 4.3 percent in March 2001 to 5.6 percent in January 2002.
Employment in the U.S. manufacturing sector decreased 7.18 percent from January 2001 to January 2002.
Additional sectors showing losses included transportation and public utilities at 2.64 percent, trade at 0.41 percent and construction at 0.27 percent.
Services and federal government reported negligible decreases. Finance, insurance and real estate expanded 0.54 percent, while mining and government employment grew more than 2 percent.
At the state level, manufacturing and construction employment dropped at similar rates in Utah, while growth in the service sector was negligible.
Trade plummeted three times faster and employment in transportation-public utilities fell almost two percent more than the national rate.
Employment growth in Utah's finance, insurance and real estate sector more than doubled the U.S. performance. However, Utah posted a nearly three percent job loss in mining.
State and local governments expanded at a slower pace than the nation. Federal government employment in Utah skyrocketed, but diminishing nationally.
A major philosophy underpinning American democracy is social contract theory, point out the foundation analysts. The philosophy maintains that citizens willingly surrender rights in return for the provision of public services.
The social contract theory serves as the basic justification for taxation, the main governmental revenue source. As demand for services mounts, pressure builds for tax hikes.
Prior to the 1930s, property tax represented the only major source of revenue in Utah. Spurred by the Great Depression, public programs expanded within the state and, in order to fund the demand, taxes multiplied.
Currently, Utah's major taxes are levied on personal and corporate income along with sales and property, note foundation analysts. Taxes on goods like alcohol and motor fuels generate significant revenue for the state coffers.
Individual income taxes are growing, while sales revenues remain flat. However, Utah's taxation of food may moderate the revenue loss in the state coffers.
Adequate data does not exist to effectively evaluate an individual nationwide recession's specific impacts on Utah, explain foundation analysts. But the state tends to reflect national trends during an economic downturn.
The severity of nationwide recessions has lessened since the Great Depression, when 25 percent of working-age American males were unemployed, note foundation analysts.
The declared end of a recession is the bottom of the trough, where the economy has fallen to the lowest level in the cycle. The recovery process required for employment to reach pre-recession levels has averaged 21.3 months or nearly twice as long as the average 11.6 month economic downturns.
Excluding the present downturn, the National Bureau of Economic Research indicates the U.S. has survived nine recessions since World War II.
The first downturn started in November 1948 and lasted until October 1949. Corporate profits dipped to 84 percent of peak amounts and fixed investments declined to 91 percent. In November 1948, the jobless rate stood at 3.7 percent. By October, unemployment jumped to 7.9 percent and did not return to the pre-recession level until January 1951. After growing 8.1 percent during 1948, inflation receded 1.2 percent in 1949. In 1950, inflation grew 1.3 percent.
The U.S. economy took longer to recover from the effects of the July 1953 to 1954 national recession. The jobless rate surged to 5.7 percent in May 1954 and the U.S. has not witnessed less than 3 percent unemployment since. Corporate profits dropped to 81 percent in July 1953. Inflation was almost non-existent, inching up 0.8 percent in 1953, climbing 0.7 percent in 1954 and declining 0.4 percent in 1955.
The next recession dated from August to April 1958. Corporate profits bottomed out at 74 percent in January 1958, but reached 118 percent in April 1959. Employment did not rebound until March 1959. The jobless rate entered the recession at 4.1 percent, jumped to 7.4 percent and declined to 4.8 percent in February 1960. Inflation increased 3.3 percent in 1957 and 2.8 percent in 1958.
During the next national recession, employment felt the downturn almost immediately after April 1960, falling in May to 99 percent and continuing to decline until February 1961.
At the lowest trough level, employment registered at 98 percent of the pre-recession figures. The jobless rate climbed from 5.2 percent to 6.9 percent.
Spending outpaced income and corporate profits fell to 89 percent of the pre-recession value.
Fixed investments dropped to 94 percent.
Occurring from 1969 to 1970, the next recession came after the longest post-war expansion enjoyed by the U.S. Employment expanded from 1961 to 1969 and the jobless rate steadily decreased, reaching 3.4 percent during 1968 and 1969.
When the economy started to contract in December 1969, employment remained constant and continued at the pre-recession level until November 1970. In October 1971, income dropped and consumption surged. Inflation started to grow in 1966, reaching 5.7 percent before tapering.
The recession of 1973-1975 was the result of the rapid increase in the price of petroleum products after the formation of the Organization of Petroleum Exporting Countries. As prices escalated, inflation followed.
U.S. manufacturers watched auto market shares shrink as imports of fuel-efficient foreign vehicles increased. Less expensive overseas labor squeezed the American sector. From November 1973 to December 1974, employment increased, then dropped to the pre-recession level and continued to fall until after March 1975. Unemployment started at 4.6 percent, climbed to 6 percent in November 1974 and accelerated. In March 1975, the jobless rate jumped to 8.6 percent, increased to 9 percent in May and remained at levels above 5.6 percent through the decade.
Inflation registered at 3.2 percent in 1972, climbed to 6.2 percent in 1973 and reached 11 percent by 1974 before declining to 9.1 percent in 1975.
Americans experienced two back to back economic downturns in the early 1980s. From January 1980 to January 1983, the American economy was in recession for 22 months.
From January 1979 until January 1980, corporate profits steadily declined. Employment recouped in October 1980, when all indicators rebounded to pre-recession levels for the shortest recovery period of any downturn.
The recession of 1981-1982 had a drastic effect on employment. Employment started to decline in December 1981, continued to drop until March 1983 and took until September 1983 to recover to pre-recession levels.
The jobless rate jumped from 6.3 percent to 10.8 percent, with nearly one of every nine Americans unemployed.
High inflation pushed corporate profits to 71 percent of pre-recession levels. Inflation rose from 7.6 percent in 1978 to 11.3 percent in 1979, 13.5 percent in 1980 and 10.3 percent in 1981.
The 1981-82 recession was the first time income growth outstripped consumption. While other indicators posted sharp drops between December 1979 and January 1980, consumer sentiment increased. Consumer sentiment declined in March and bottomed out in May 1980.
As employment started to contract in June 1980, sentiment continued to rise until November. After plummeting in December 1980, sentiment leveled out.
Consumer sentiment dropped in November 1981 and did not reach pre-recession levels until February 1983. August 1983 brought a decline in sentiment, while the next quarter witnessed a drop in consumption and fixed investment.
The last national recession dated from July 1990 to March 1991, but employment did not rebound until December 1992. Personal consumption did not recover until October 1991 and fixed investment did not recoup until July 1993. After reaching a low of 1.9 percent in 1986, inflation jumped to 5.4 percent in 1990, declined to 4.2 percent and continued along a downward path through the decade. Corporate profits posted a mild dip in 1990, then climbed until an abrupt downturn in July 1992. Consumer sentiment remained pessimistic and the unfavorable view of the economy, coupled with sluggish consumption, contributed to employment's long recovery period.