Today’s Unemployment Rates Do Not Compare to the Great Depression

Suzanna de Baca -- Expert Business Source, 12/8/2008 11:36:00 AM

“In the Great Depression, almost one in four Americans was unemployed. Today, it's about one in 15,” writes journalist Bob Rathgeber in a Dec. 6, 2008 article in the Fort Meyers News Press entitled “The Economy: Recession or Depression.” I’m pleased that Rathgeber is putting today’s unemployment numbers in perspective as comparisons to the Great Depression are becoming disturbingly common.

Earlier this week, the Labor Department reported that unemployment rates had risen to 6.7%, the highest rate since the early 1990s. By contrast, from 1929 to 1931 unemployment skyrocketed, eventually hitting 25%. We are now officially a year into a Recession, so while these unemployment rates are alarming, they do not necessarily portend a crisis akin to the Great Depression.

We’ve all seen the headlines and are aware that of the massive layoffs which have occurred in the last few months. These job cuts have pushed up the unemployment rate, which last year hovered under 5%. In a December 5, 2008 Washington Post article by Howard Schneider and Cecilia Kang entitled “More Bad Economic News on the Labor Front,” the authors write: “ Some 2.7 million jobs now have been eliminated since the economy moved into recession a year ago -- nearly 1.3 million of them in the last three months.”

This rate of increase is steep, but is not nearly the acceleration that America saw during the Depression.  Many experts estimate that this recessionary period can be more accurately compared to the recession in the early 1980s, or the recession from 1973-1975.

In a December 3, 2008 CNN Money article, “How long will the recession last?” contributor Anthony Karydakis writes, “The most intuitive, and legitimate, reference is the 1981-82 recession, which lasted a longer-than-average 16 months and led to a peak of 10.8% in the unemployment rate - by all standards, a pretty serious affair.”

Karydakis continues, “Still, it would take an extraordinary amount of additional severe damage to today's economy over a fairly long period to drive the unemployment rate from its current 6.5% to double-digit territory.”

He also notes that while the 1973-5 recession was equally serious, “That one lasted a longer-than-average 16 months and led to a 9% peak in the unemployment rate.” Karydakis does go on to say that due to the weakened banking system, this recession could last longer than the 1973-75 and the 1981-81 downturns and that the recovery may still be more gradual.

No one knows what is to come. There will likely be more layoffs and hard times. But keeping this period in perspective can be helpful. As Rathgeber also points out in his Fort Meyers News article, “In the 1930s, 10,000 banks closed their doors. The current wave of bank failures is fewer than 500. After the Dow Jones Industrial average peaked in 1929, the market lost 85 percent of its value. In this downturn, the Dow has lost less than half its value.”

Suzanna de Baca is president of Private Capital Solutions Group. Securities offered through Broker Dealer Financial Services Corp. Member FINRA & SIPC. Investment Advisor Representative of Investment Advisors Corp., A Registered Investment Advisor. Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed reliable, please note that individual situations can vary, therefore the information should be relied upon when coordinated with individual professional advice