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We can always find a millionaire to shovel all the coal.
-- Tom Waits, "Clap Hands"
OK, I'm starting to get angry. It seems like everybody is saying this is the weakest economic recovery ever.
Case in point: Alan Abelson of
points out that economist Paul Kasriel wrote a critical article on Larry Kudlow's piece last week in
The Wall Street Journal
. Kudlow was citing the evidence that the economy is doing great. Among Kudlow's evidence was the following:
- after-tax corporate profits are up 19.5%
- inflation-adjusted consumer spending is up 3.6%
- capital-goods investment by businesses is up 13.9%
And so on.
According to Abelson, Kasriel points out that the jobless rate has showed a much slower decline than the usual average postwar recovery. The average recovery decline in the jobless rate is 19.8%, notes Kasriel, as opposed to this recovery's 2.4%. Kasriel also says that the average postwar expansion rate in GDP has been 5%, as opposed to the 3.4% expansion in this recovery pointed out by Kudlow.
Apples and Oranges
Well, Kasriel is right. But I'm afraid he would get an F in Economics 101 for his analysis. Why can't he mention other things that make this recovery different from every other recovery?
Unemployment is one example. Yes, it's a shame that the unemployment rate can't match the 19.8% decline of other recoveries. But let's look at the full picture, something Kasriel and Abelson should have mentioned in their articles. This was the shallowest recession ever in terms of the effect on unemployment.
For instance, in this recession, the unemployment rate peaked around 6.3% about 18 months after the recession ended. (The unemployment rate always peaks in the year or so after a recession ends, as opposed to when a recession is going on.) Since then it's down to 5.4%, a decline of 8.5%. However, the increase to a 6.3% unemployment rate was the smallest of many recoveries we've had in the past several decades.
For instance, in the 1991 recession, unemployment peaked at 7.8% in June 1992. That was a full 14 months after the recession of 1991 ended. In the double-dip recession of 1982, unemployment peaked at 10.8%. In the recession from 1973-75, unemployment peaked at 9%. For the recession of 1969-70, the unemployment rate didn't peak for a full two years, finally topping out at 5.9%.
Going back further, the recession of April 1960-February 1961 had the unemployment rate peak at 7.1% in May 1961. And on and on. (The unemployment rate still hasn't come down from the pre-recession low before the recession of 1953. I guess the economy has been horrible ever since.)
Every postwar recovery recession had a higher peak, or trough to peak, than the recession we just experienced. Sure, it's easy to pull out some facts and say that this is the weakest recovery ever. But saying that is just plain wrong and skews the statistics inappropriately.
Also, this recession was one of the weakest in terms of its effect on consumer spending. Looking at personal consumption expenditures of durable goods in real dollars, this was the shallowest recession ever. During this recession there was no quarterly dip at all in that statistic except for a tiny dip of less than 0.2% between the first quarter and second quarter of 2001.
In the recession of the early 1990s, that number went down for four straight quarters before recovering. In the recession of the early 1980s, the statistic dropped by over 15% before bouncing back up. The recession of the mid-1970s also saw a 15% decline in real consumer spending on durables.
If you drop a tennis ball from the 10th floor, it might bounce to the second floor. If you drop it from the first floor, it won't bounce as high.
So when you're looking at whether a recovery is "the weakest ever" by comparing it with the recovery after other recessions, it's very helpful -- and necessary -- to use the beginning of the recession as your starting point, and not the end. Otherwise, the statistics are meaningless, the point is moot and everyone gets depressed listening to you.
James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of
Trade Like a Hedge Fund
. At the time of publication, Altucher had no positions in any of the stocks mentioned in this column, although positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback and invites you to send it to
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