« Provision of Medical Services to Undocumented Aliens | Merrill's Blog | Business Process Management and permanent job elimination »
The recession is not over; not even close to over
Suppose that the recession is going to be "V" shaped, which is the hope of the more optimistic. Then, the recession is not over until we reach the top of the right side of the "V".
At present, we may have just passed the bottom of the "V" and started up the right side. However, it will be a few quarters until we get up to a level even with the left side.
It is specious to declare a recession over until the GDP exceeds its previous maximum, adjusted for inflation, for two sucessive quarters.
Advertisement
Plus, as Eliot Spitzer says: GDP is not the economy; the Banks and Wall Street are not the economy; the banks aren't lending, so the people aren't being helped.
October 29, 2009 9:04 PM | Reply | Permalink
Exactly, as Redneck just pointed out so poignantly in his blog about this subject:
http://tpmcafe.talkingpointsmemo.com/talk/blogs/lostboy/2009/10/the-economy-is-getting-better.php
October 29, 2009 9:09 PM | Reply | Permalink
The NBER 2007-2009 recession will be found to have ended on 10/7/2009 with the 10-yr UST at 3.17% (How's that for being precise?).
But what does that mean?
The last NBER recession ended in November 2001, but six months later the stock market crashed and bond values soared. Employment didn't begin to recover until 2003, and even then, the recovery was nothing to talk about.
As a stock and bond investor it's probably time to get out of bonds and into stocks until some time next summer. As a Chairman of the Federal Reserve Board it's time to make good on your promise to your reappointing President not to raise interest rates until weekly job claims are less than 400,000 -- probably well less than 400,000.
October 30, 2009 12:41 AM | Reply | Permalink
When will that happen? New unemployment claims haven't been below 500,000 in over a year and aren't projected to go below that until 2011 (maybe). I say maybe because the variation in projections is all over the place. Outside of a very general notion of how these cycles go, nobody really knows. I'd guess there are some variables that cannot be known.
October 30, 2009 3:02 AM | Reply | Permalink
Que sera, sera.
400,000 initial weekly unemployment claims equals a jobless recovery, but the unemployment rate will be coming down as more and more discouraged workers drop out of the labor force.
The economy can muddle along with very high unemployment; it can't muddle along with a bubble in commodity prices and hot money pouring into developing countries' markets and economies -- each bubble Fed generated.
I like the images of a reversed square root sign for the stock market and of a reversed lazy-W for the economy.
October 30, 2009 7:35 AM | Reply | Permalink
Note: In the 20 years beginning with calendar year 1975 unemployment was below 6% in only 4 years.
Absent the happening of another internet-type technology U-3 at 7.5% will be the "new normal."
October 30, 2009 7:49 AM | Reply | Permalink
On this BLS page the numbers indicate below 6% for eighteen years (if I counted right) from 1975 to present.
http://www.bls.gov/cps/prev_yrs.htm
October 30, 2009 8:09 AM | Reply | Permalink
I was using Household Data rather than CPS (Current Population Survey).
I can't recall which labor force series is preferred by labor economists.
October 30, 2009 9:02 AM | Reply | Permalink
Yeah, my ability to understand economics is not that great but I agree with your assessment.
And I think there are several 'v's involved. We keep losing jobs. We have not even hit bottom as far as employment until we begin gaining more than we are losing.
screw the stock market.
October 30, 2009 3:08 AM | Reply | Permalink
I expect a W, if not a persistent up and down pattern.
October 30, 2009 7:23 AM | Reply | Permalink
We just got rid of a W. :-)
October 30, 2009 7:51 AM | Reply | Permalink
He left an echo. :-)
October 30, 2009 8:04 AM | Reply | Permalink
And a bad taste.
And a lingering odor.
And a trash strewn landscape.
And an infuriated public.
And disenfranchised minorities.
And a lot of dead people.
And our highest national debt ever.
And a new standard for lying.
I could be at this all day.
October 30, 2009 8:34 AM | Reply | Permalink
In deciding when a recession is over the NBER claims it "places particular emphasis on two monthly measures of activity across the entire economy: (1) personal income less transfer payments, in real terms and (2) employment."
Historically, these measures responded rapidly to the growth in GDP, and therefore, the NBER could confidently treat real GDP as "the single best measure of aggregate economic activity." But post-2001 those measures didn't respond to the growth in GDP as they had in the past. See Figures 2 & 3.
An anomaly? Or is it that our bubble-loving Greenspan-Bernanke Fed learned how to pump the GDP in an economy dominated by finance capitalism?
October 30, 2009 8:53 AM | Reply | Permalink
The NBR definition of recession as a specialist term used by economists is:
However, I think that the public doesn't think of recession that way. If economists were to use:
-- recession - peak to trough,
-- recovery - trough back to previous peak, and
-- expansion - continued expansion above the previous peak,
then the common understanding of "recession" would be the period which includes both the economists' recession and recovery.
By analogy, if you have the flu, it is not over on the day your fever starts to go down.
October 30, 2009 11:10 AM | Reply | Permalink
I'm not sure the public's understanding/definition of recessions/expansions means much.
Theoretically, those responsible for implementing monetary and fiscal policies have to know where an economy is in the business cycle in order to choose the appropriate policy. The NBER Committee is late to the party and its dating function appears to be useful only for the purpose of judging the success or failure of the policies chosen -- always in hindsight.
As they say on M.A.S.H., "That is all."
October 30, 2009 1:55 PM | Reply | Permalink