Planning Decisions, Inc.

THE BOTTOM LINE FROM CHUCK LAWTON

Maine and Recessions

Published Sunday February 17, 2008

A recession is a significant decline in economic activity
spread across the economy, lasting more than a few months,
normally visible in real GDP, real income, employment,
industrial production and wholesale-retail sales.
~National Bureau of Economic Research

With all the talk about recession—Will we have one? Are we already in one? How long will it last?—it is useful to look back at the last two to see how they affected Maine.

According to the NBER—the official arbiter of the business cycle—the U.S. economy last peaked in March 2001, and entered a recession that lasted until November. The “official” recession lasted eight months. Prior to that, the economy peaked in July 1990 and suffered an eight-month recession lasting until March 1991. But while these national recessions were similar in duration, their impacts on Maine were vastly different. Consider the chart nearby.

Source: Bureau of Labor Statistics

In Maine, total non-farm employment reached a peak in the first quarter of 1990 of just over 544,000. In the second quarter, just as the national economy was reaching its peak, Maine lost 3,000 jobs, a drop of 0.6 percent. For the next six quarters, Maine continued to lose jobs, a total of over 35,000. It wasn’t until the first quarter of 2002 that Maine saw the beginnings of an employment recovery—a paltry gain of 100 jobs. Indeed, it wasn’t until January 1997—fully six years after the national recession had “officially” ended that Maine regained the employment peak it had reached in January 1991. In short, the relatively short national recession of 1990-91 was anything but short or mild in Maine.
The 2001 recession was a different story. In the second quarter of 2001—the beginning of the national recession—employment in Maine actually increased by 600 jobs or 0.1 percent. In the third and fourth quarters of 2001, employment in Maine dipped slightly, losing about 3,000 jobs in each quarter. Then in 2002, Maine saw two quarters of slight employment gain followed by two quarters of slight employment loss, finishing the year with about the same level of total employment. Thus, while the total impact of the 2001 recession on Maine was less severe than that of the 1990-91 recession, it was still a full eight quarters before Maine employment began to rise steadily again. And it wasn’t until January 2004 that total employment in Maine regained its pre-recession peak of January 2001. And, perhaps even more significantly, employment growth throughout these last several years of national expansion—2003 to 2007—has been significantly less in Maine than in the nation as a whole.

So is there a lesson to be learned from this history as we anticipate the next recession?

To my mind that lesson is to redouble our efforts to build on the underlying strengths of Maine’s economy—highly skilled and highly motivated people and wonderful places to live. Recessions, like waves of disease, sweep through and wreak havoc on the weakest—the businesses with the least financial strength, the workers with the least skills. What causes those waves of destruction is almost always perfectly clear in hindsight and perfectly invisible beforehand. In the end, they can never be avoided entirely. The best we can do is identify and stick with those areas where long-term demand is such that we will be able to grow through the periodic cyclical downturns we can never avoid.

COMMENTARY