To construct these data, I took the logarithm of the twelve-month difference of the S&P 500 and the log of the twelve-month difference of the unemployment rate beginning in 1929 and ending in September of 2009. I constructed fourteen separate charts, one for each of the fourteen recessions. The charts are labelled by the month in which the recessions began.
The article does point out that their claim does not disqualify the double-dip thesis.
The fact that the current recession is over does not mean that we are out of the woods, even if unemployment does begin to come down a year from now. The Great Depression, for example, consisted of two consecutive recessions. The first began in August 1929 and ended in March 1933. The second began in May 1937 and ended in June 1938. As the first two charts in Figure 1 illustrate, both of these recessions were accompanied by significant stock market declines. The end of the current recession has been accompanied by massive injections of public money into the credit markets and large fiscal expansions. In my view, there is a real danger of a relapse when this life support ends.
Aggregate demand can be propped up by government expenditure. It can also be propped up by central bank intervention in the asset markets. When the US fiscal expansion comes to an end, as it must eventually, government demand will fall. If the Fed also chooses to end its policy of supporting the value of private assets through the purchase of long term government bonds and private securities, there is a significant danger that the stock market will fall again as it did in 1937. This will cause private expenditure to collapse, and it may lead to a larger increase in the unemployment rate than that which has already occurred.
Enjoy.
