Recession Talk
By Phil Bolin

The economy has been a topic of much discussion and debate through the early part of 2008. More specifically the debate centers around the question: are we in a recession or not? Some economic indicators show signs of a recession: declining manufacturing output, unemployment, a weak dollar, and anemic GDP numbers. Now we may not know for some time whether we are in a recession or not, but does it matter? Recessions have occurred periodically throughout our history, and the economy has always bounced back.
The National Bureau of Economic Research has identified ten American recessions since World War II. Let’s take a look at some notable recessions in recent decades, and the way Wall Street reacted to them.

The 2001 Recession
This recession lasted eight months, by NBER’s estimation, and it followed the longest period of economic expansion in U.S. history (1991-2001). It accompanied the last bear market, which lasted roughly from mid-2000 to late 2002. In 2002, domestic stocks tanked: the Dow Jones Industrial Average was down 16.8% for the year, the S&P 500 sank 23.4%, and the NASDAQ fell 31.5%. But in 2003, the market made a powerful comeback: the Dow gained 25.3% on the year, the S&P 500 26.4%, and the NASDAQ an amazing 50%. The bulls kept running right on through 2007.

The 1990-91 Recession
Some trace the roots of this one back to Black Monday in 1987, while others link it to the S&L failures and junk bond collapses of the late 1980s. The first three quarters of 1991 represented the depths of this recession, which did much to thwart the reelection of President George H.W. Bush. Interestingly, this one occurred in the middle of an 18-year bull market. Between the start of 1990 and the end of 1991, the Dow rose 10.3% from 2,810 to 3,100.

The 1981-82 Recession
Lasting 16 months, some blame this recession on the Federal Reserve, which tightened its monetary policy in response to the runaway inflation of the late 1970s. Some economists see it differently, arguing that Fed chairman Paul Volcker had to do something drastic to get the economy back on its feet. The Fed ended up hiking interest rates all the way to 21.5% in December 1980 and during this recession, the jobless rate was higher than at any time since the Great Depression. But the Fed’s strategy worked. By 1983, inflation was down from double digits to 3.2%.

The 1973-75 Recession
Those of you over 45 will probably remember waiting in line for gas and buying gas only on even or odd days. This one occurred not only due to the OPEC oil embargo, but was also as a byproduct of the U.S., U.K., and other key nations going off the gold standard in the early 1970s. That move devalued the dollar and other benchmark currencies. So in October 1973, OPEC decided to price oil relative to the price of gold instead of the dollar. Its member nations also cut production levels. Over the next few months, crude oil prices quadrupled and commodities prices took off. The bull market for commodities lasted until the dawn of the 1980s. When the OPEC embargo hit, Wall Street was already in the middle of a bear market. Yet just a short time later, in July 1976, the Dow hit 1,011, its highest point between January

1973 and October 1982.
Some perspective
Until recently, recessions routinely occurred every few years. Only two post-World War II recessions have lasted longer than a year. Some economists feel this is due to the evolution of the U.S. economy. Today, consumer spending and the service sector are huge drivers of the economy, not just manufacturing. If we are in the first recession in seven years, history shows that it may very well fall in line with recent economic examples, having only brief and temporary effects.