In times of economic misery, the relentless flow of bad news can be as hard to bear as the monthly bills. How long, one wonders, before some glimmer of hope makes its way onto the financial pages?
Predictions are a fool’s game, of course. But history at least offers the comfort of precedent, and precedent tells us the bad-news period usually lasts about 17 months. That’s how long the U.S. economy has contracted, on average, after hitting the peak of each business cycle dating back a century and a-half. After about 17 months, the stats say, domestic product and income typically commence the long climb back out of the hole of non-confidence.
These numbers come to us courtesy the National Bureau of Economic Research (NBER), an 88-year-old think tank which draws its figures from 32 cycles during the 154 years since government began tracking economic stats with any reliability.
Needless to say, the length of down cycles vary widely, and are impossible to predict. Just ask workers and investors who waited 65 months after the peak of October 1873 (okay, they’re dead, but we know what they would say). By comparison, the Great Depression’s 43-month contraction (August 1929 until March 1933) is mild. It was, however, the longest by far since the turn of the century, and one must remember the impact of any decline on employment and living standards depends on the speed and depth of the contraction. In the early 1930s, the economy slid with breathtaking abandon.
There is much to the current downturn to suggest it will be anomalously long. Never has credit flowed as freely and widely as it did before last fall’s meltdown; never have American consumers been so immersed in debt. In Canada, jobs are now disappearing more quickly than they have since the feds began tracking monthly employment.
Still, the post-Second World War period has never seen a decline last longer than 16 months. And if you’re looking for silver linings, consider the educated guess of the NBER’s “business cycle dating committee” that economic activity hit its peak in December 2007, after 73 months of expansion. Based on that 17-month average, this means things should turn around in late spring or during the summer, which is precisely the rosy prediction Mark Carney, the governor of the Bank of Canada, gave a couple of weeks ago. Other economists chided Carney for failing to share their pessimism. But he is no doubt a keen student of bygone economies, and on the financial desert of a serious recession, there are worse prophets than history to follow.