The shape of the recession

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Lots of news organizations offer assessments of whether or not we’re in a recession, or advice on what to do if we are. Here at the Curious Capitalist we focus on the really important stuff–like what shape the recession will be. Together with graphics czar Feilding Cage, I have assembled a groundbreaking gallery of potential recession trajectories. And we’re not just talking about Vs or Us or Ws or even Ls here.

Well, maybe a few Ws. The last recession, which ran from March through November 2001, followed the W trajectory, presumably in honor of the then-new president. The Bureau of Economic Analysis has since revised third quarter 2000 GDP down to negative growth too, though, so I guess it’s really a VW. An extremely shallow VW:

Similar downward revisions are probably in the offing for the past year’s GDP numbers. But for now, through the third quarter, we’ve got the makings of a very nice W. And if the University of Chicago’s Casey Mulligan is right and the financial sector doesn’t have much impact on the real economy, a very nice W is what we’ll get. Projecting positive growth for the fourth quarter seems too optimistic for even the optimists, but if we get growth after that the recession will end up looking something like this (I’ve named the chart in Mulligan’s honor, but as far as I know he doesn’t do forecasts so I made up the numbers myself):

Then I took the actual forecast of Maury Harris, the chief economist at UBS, who is not any kind of doomsayer but does think this recession will be quite sharp–he’s projecting that the economy will shrink at a 3.5% annual pace in the fourth quarter. The result is still a W, but not a straight-up and sober one:

And what about Dr. Doom himself, NYU economist Nouriel Roubini? Roubini was kind enough to send me his forecast through the end of next year. Really not much of a W anymore. I think it looks like a ladle, although I’m open to other suggestions:

But what if even Dr. Doom is too optimistic? What if it really is the early 1930s all over again? I threw together some GDP-growth numbers from those days and the chart began to resemble a shovel. Not good, not good at all:

We know it won’t be like the early 1930s, though, because Washington is now full of Keynesians eager to throw money at the problem. What if they keep passing stimulus packages like the one that resulted in all those tax rebate checks over the summer? Here’s my entirely unscientific forecast: