Revised GDP figures show that the 2008-09 recession was significantly deeper than previously thought, implying an even bigger “productivity puzzle” – the apparent mismatch between severe output weakness and a relatively modest loss of employment.

GDP is now estimated to have fallen by 7.1% between the first quarter of 2008 and the second quarter of 2009 versus a previous 6.4% decline between the same starting quarter but a later trough in the third quarter of 2009. The subsequent recovery has been marginally stronger than in the earlier data – 2.8% rather than 2.7% by the second quarter of 2011 – so the latest level of GDP is 0.5% lower than previously thought, relative to the pre-recession peak.

The chart compares the new and old data together with the path of GDP in the previous three recessions and recoveries. Relative to the peak, GDP in the second quarter of 2011 was 1.6% below the level at the same stage of the recovery in the early 1980s, which followed the second worst recession in the post-war period, involving a 5.9% GDP decline.

The “productivity puzzle” can be illustrated by a comparison with the 1990-91 recession, when GDP and employment (labour force survey measure) fell by 2.5% and 6.3% respectively from peak to trough. While the reported decline in GDP in 2008-09 was nearly three times that in the early 1990s, the employment loss was much smaller, at 2.5%.

A case can be made for excluding oil and gas production when making cross-recession comparisons – rising North Sea output moderated the fall in GDP in the early 1980s. On the revised figures, gross value added excluding oil and gas started to decline one quarter earlier than overall GDP, though bottomed in the same quarter (i.e. the peak occurred in the fourth quarter of 2007, as Northern Rock was imploding). The peak-to-trough drop was 7.1% versus 6.3% over 1979-81. Relative to the peak, non-oil output in the second quarter of 2011 was 0.8% below the level at the same point of the early 1980s recovery. Employment, however, fell by 6.5% over 1979-83.

Some apparent “good news” in today’s figures is an upward revision to average GDP growth in the decade preceding the recession, from 2.8% annualised to 3.1%. This, however, seems mainly to reflect a decision to switch from retail prices to consumer prices in deflating nominal consumer spending. It is debatable whether this represents a methodological improvement, particularly as it has not been possible to implement the change for earlier decades when the CPI was unavailable, thereby distorting long-term GDP growth comparisons.