Recession Over?

As an economist I am the first to admit that sometimes the methods and practices of economics can end up creating confusion rather than understanding.  The National Bureau of Economic Research’s (NBER) recent announcement that the recession ended in June 2009 is one such example.

At the heart of this confusion is a difference in how the public sees a recession and how NBER defines it.  Most importantly, NBER views recessions as contractions.   Simply, “Is the economy growing or not?”  NBER uses that framework to then date business cycles from their peak to their trough.  For this reason, NBER will often date the beginning of a recession during a time when the economy feels strong (at its peak) and date the end of a recession when it feels weak (when it’s at the bottom).

Since this method seems at odds with how the public views the economy, why do economists use it?  Quite simply, it is a lot easier to spot, and agree on, turning points in the economy than it is to agree on when growth moves from weak to moderate to strong.

OK, enough on definitions.  Did we actually hit bottom in Summer 2009?  Looking at a variety of economic measures, I think it’s clear we hit bottom earlier–more like Spring 2009.  Again, I must emphasize: Hitting bottom is not the same thing as “everything is fine” - just ask anyone who’s personally hit bottom.  Just two examples of why I believe the contraction ended in early 2009; first: consumption, as one can see from the chart, actually hit bottom hear the end of 2008.

One of the defining characteristics of the current recession has been continued weakness in the labor market.  I would go as far as to say there has almost been a disconnect of the labor market from the general economy.  All that said, looking at the trend in layoffs and discharges indicates that separations from the labor force peaked near the end of 2008.  The graph below also illustrates why some are worried about a double-dip, as layoffs spiked again in the middle of 2010, although most of that is driven by the 2010 Census hires.

The point to all this is not to argue that the economy isn’t weak.  It obviously still is.  However, the economy has been growing, for at least a year, and under many measures, longer.  Interestingly enough, most measures of the economy hit bottom before a dime of stimulus money was spent.  The above charts are from the Federal Reserve of St. Louis FRED website.  Don’t take my word on these two charts.  Look at lots of other measures.  Not all, but most other measures seem to tell the same story.