Academic journal article Economic Review (Kansas City, MO)

Recession and Recovery across the Nation: Lessons from History

Academic journal article Economic Review (Kansas City, MO)

Recession and Recovery across the Nation: Lessons from History

Article excerpt

The U.S. economy officially fell into recession in December 2007, but the timing of the downturn varied widely across regions of the country. In some regions, employment began to erode much earlier in 2007, while in other regions economic activity stayed strong well into the second half of 2008. Do regions typically vary this much in the timing and circumstances of their recessions? If so, perhaps past experience can also shed light on whether some regions can be expected to rebound earlier or stronger than others from this recession.

To explore these possibilities, this article looks at job growth trends across the 12 districts of the Federal Reserve System in recent business cycles. The article finds that the timing and depth of regional recessions typically vary widely, with several districts regularly outperforming others. The same generally holds true for the timing and strength of economic recoveries and expansions across the country. Some of these differences can be explained by the unique industrial structures of the districts, but other factors also play a role.

Depending on the district, the current recession has both similarities and differences with past recessions. Supplemented with other economic theory and analysis, these past experiences may provide some guide to the future regional pattern of recovery.

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The first section of the article examines the timing of entry to the current recession by the Federal Reserve districts, as well as the wide range of job growth across districts since the 2001 recession. The second section compares this recent experience with U.S. business cycles over the past 50 years. The third section describes how historical trends and economic theory can contribute to understanding the future path of regional economic growth.

I. THE TIMING AND CIRCUMSTANCES OF THE CURRENT RECESSION

The current U.S. recession ended a period of national economic expansion that officially started in late 2001. Since then, employment growth in the 12 Federal Reserve districts has varied considerably--both during the recovery and after the current recession began (Figure 1).

When did the current recession begin in each district?

The nation's arbiter of business cycle dating--the National Bureau of Economic Research (NBER)---considers trends in a number of economic indicators in declaring the start and end dates of recessions. These include employment, industrial production, sales, and real income. (1) Based on the NBER's analysis of this combination of data, it determined that the U.S. economy entered recession in December 2007.

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To analyze the timing and depth of recessions across Federal Reserve districts over long periods, slightly different measures are necessary than those used by NBER. In this article, quarterly employment data are used to identify regional business cycle peaks and troughs. (2) Based on this measure, the U.S. economy entered the current recession in the first quarter of 2008.

By the first quarter of 2009, all 12 Federal Reserve districts had entered the current recession (Chart 1). (3) The Atlanta District was the first district to experience a downturn, with employment beginning to decline in the second quarter of 2007. The Cleveland and Chicago districts also entered early. Only two districts entered the recession in the same quarter as the nation, with five others joining in the following quarter. The Kansas City and Dallas districts entered last.

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How has job growth varied across districts in recent years?

Differences in overall job growth by the 12 districts have also been sizable during the recent economic expansion. While employment in several districts never returned to its pre-2001 recession level, jobs in other districts grew fairly rapidly.

District employment gains during the recovery ranged from less than 1 percent in the Cleveland District to nearly 14 percent in the Dallas District (Chart 2). …

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