Newspaper article The Christian Science Monitor

What Makes This Recession Unusual

Newspaper article The Christian Science Monitor

What Makes This Recession Unusual

Article excerpt

RECESSIONS do not follow standard patterns.

Of course, by definition a recession involves slower activity in a broad cross section of the economy. But each such slump has some individual characteristics.

The last recession eight years ago was a severe one. National output dipped 3.4 percent. That's not as much as the 4.3 percent downturn in 1975, but more than the minus 2.3 percent in 1980 or the 0.8 percent slide in 1970. Unemployment reached nearly 11 percent of the work force in late 1982, almost twice as high as today. Many of the jobless from the "rust belt" piled into their cars and drove toward the more prosperous Sun Belt. In Texas, the migrants became known as "blackbirds" because of the black license plates of those from Michigan.

This time most economists anticipate a mild downturn. The Iraq-Kuwait oil shock is not close to the magnitude of those prior to the severe recessions of 1982 and 1975, notes Roger Brinner, chief economist with DRI/McGraw-Hill, a Lexington, Mass., consulting firm. The price surge, from $18 to $30 per barrel, is less than half as big. And the role of oil in US economic output is only two-thirds as great as it was in 1980. Purchasing power losses are one-quarter to one-third the size of the 1979-81 episode, calculates Mr. Brinner.

Nonetheless, some economists blame the current recession on the Iraq-Kuwait shock. "It's the fear of war that is depressing the economy," states Sam Nakagama, a Wall Street economist.

"The uncertainty created by this episode has caused businesses and consumers to severely curtail spending," notes Michael Keran, chief economist at the Prudential Insurance Company of America. As a result, he has marked his forecast for the United States economy down sharply, anticipating a decline in national output at a 2 or 3 percent annual real rate in the fourth quarter of 1990 and first quarter of 1991. If that war threat evaporates, he expects business to rebound. But it could fall back again if the price of oil remains around $25 per barrel.

Geoffrey Moore, director of the Center for International Business Cycle Research at Columbia University, notes three unusual features in this slump. …

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