Introduction
Not too long ago, there were a lot of mass layoffs from tech companies accompanied by the continuing increase of interest rate. Therefore, a lot of people are worried about a pending recession. In order to know if we have are heading into a recession, we need to first know more about what a recession is and how they manifest in the economy.
Data Source
The main data source is the Federal Reserve Economic Data (FRED). The datasets include interest rate, general unemployment rate, unemployment rate by ethnicities, and unemployment rate by US counties.
I have also used an Investopedia article to identify recession periods and respetive name of the recessions.
What is a recession?
The formal definition of recession is: a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.
Now that we know how a recession is defined, let's see what they look like.
Click or scroll down to start
This chart shows the overall unemployment rate in the US since 1965.
Can you guess when there were recessions happening in the US?
Let's highlight the recession periods. How close were your guesses?
We can see some interesting patterns here:
- The unemployment rate seems to always increase during a recession.
- The unemployment rate tend to start increasing at the start of a recession, and tend to peak at the end.
From this pattern we just found, we should be able to say that we are not yet in a recession (as of March 2023).
How about the interest rate? Another common economic indicator to look for is the interest rate.
This chart shows the interest rate in the US since 1965.
Can you spot when there were recessions happening from the interest rate?
That was likely harder to do. How did you do?
We can also see some patterns here:
- The interest rate tend to decrease during a recession.
- The interest rate tend to increase before a recession starts.
From this pattern, we might say that we are indeed heading towards a recession (as of March 2023).
What if we put recessions side by side?
This chart shows the unemployment rate after each "pre-Covid" recession.
Here the Covid Recession is excluded because it is a unique recession (the narrow spike at the tail of the Great Recession), because its cause is a health crisis instead of a financial one.
From this chart, we can see that the Double-Dip Recession is the only recession that peaked at the end of the recession
If we align the recession by the start instead, we can better see that the unemployment peak occurs at a similar time, around 2 years after the recessions started.
What if we look at the percentage difference of unemployment rates compared the the start of the recessions?
We can see that of the 4 recessions, the Great Recession has the biggest increase in unemployment rate and took the longest to recover.
How about other aspects of unemployment rate?
This chart shows the unemployment rate of different ethnicities.
We can see that African-Americans have the highest unemployment rate at all times since 2000 except during the Covid recession.
What about an indexed version of the unemployment rates?
If we index the rates at the end of the Great Recession , we can see that the unemployment rates of each ethnicities behave similarly except for the peak of Covid Recession, where African-Americans has the smallest spike.
It more obvious if we index the rates at the end of the Covid Recession , we can see that the line representing African-Americans separating from other lines.
This means all ethnicities except African-Americans were affected more by the Covid Recession than the Great Recession.
We can also see that the unemployment rate for African-Americans decreased the slowest after the Covid Recession.
What does unemployment rate look like geographically?
Here we have two US County maps showing the change of unemployment rate from the start of recessions to the end of recessions.
We can see that the COVID Recession had a larger overall unemployment rate increase than the Great Recession.
But the Dot-Bomb Recession looks very different.
At the end of the Dot-Bomb Recession, most of the US counties had a decrease in unemployment rate.
If you still remember, the Dot-Bomb Recession is one of the recessions that have an unemployment rate peak after the end.
So perhaps we should compare the peaks of each recession.
Now we look at the change of unemployment rate from the start to the peak of recessions.
The Dot-Bomb Recession looks more normal now, but we can still see that more counties had a decrease in unemployment rate during the Dot-Bomb Recession compared to the Great Recession.