Last Updated Sep 20, 2010 3:09 PM EDT
The National Bureau of Economic Research, the arbiter of the start and end dates of a recession, determined that the recession that began in December 2007 ended in June 2009.
The business-cycle dating committee met by phone on Sunday and came to the determination. "In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month," the committee said in a statement. The 2007-2009 recession is the longest in the post-WWII period.
The decision by the NBER means that any future downturn in the economy would be considered a new recession and not a continuation of the recession that began in 2007. ...The decision is generally based upon the examination of four series, gross domestic product, income, employment, industrial production and wholesale-retail sales.
It's important to note that this is an attempt to identify the trough of the recovery. It does not say we have recovered, only that we've turned the corner, and it doesn't say anything about how long it will take to reach full employment.
Is the date correct? An examination of recent data does reveal a "fishhook" shape, though the part of the hook with the barb is pretty short. So it's hard to quarrel with the date they assigned, particularly given how past recessions were dated. But it is worth noting that the trough of the cycle for employment is far later in time than the trough for GDP, something that was true in the past two recessions as well, and that the date for the trough is influenced more by GDP than employment. The trough of the employment cycle alone would be much later in time, and it's not clear we are there at all yet.
And that is my worry about this call. Yes, there are signs of green shoots and signs we've turned the corner. But I'm very worried we are going to bounce along the bottom of the valley near the trough for an extended period of time rather than making a strong move back to full employment. If the apparent turnaround stalls, or if we regress a bit, it won't be as certain that the bottom is behind us. Whether or not we stay near the trough for an extended period or move gradually but consistently back to full employment is an open question, but I don't think we can discount the stagnation outcome. In the event of the dreaded double dip, the Committee would likely call a new recession rather than revisiting this one, but from my perspective it would all be one long, continuous event.
To reinforce the worry about the a stagnating economy, the date the Committee determined, June 2009, is very close to the outcome predicted by my colleague here at the University of Oregon, Jeremy Piger:
Dude, Where's My Recession Bar?, Big Picture: For several months, I had been getting increasingly curious about the fact that the St. Louis Fed's FRED data and economic research service was no longer indicating a vertical "recession bar" from the period starting around mid-year 2009. Finally, today, curiousity got the best of me and I called my St. Louis Fed contact. This was his response (confirming what I'd already inferred):Here is Jeremy's latest estimate using data through June 2010:Apparently the two staff economists that review the FRED charts believe July 2009 is the date they believe the NBER will announce as the end of the recession. From what I understand a similar "call" was made toward the end of the 1990-91 recession.If I was to highlight one source they used it would be Jeremy Piger's (University of Oregon), recession probabilities. He was a staff economist until about 4-5 years ago.I'm not entirely sure I agree with their assessment, but do think it noteworthy that one of our Federal Reserve banks has apparently "called" a July 2009 end to the recession. I should have inquired on this point sooner, but life got in the way.
Notice that although his estimates of the date of the end of the recession is very near where the NBER called it, there is a worrisome recent uptick in the estimates. The uptick in the index is not at a high enough level yet to be overly concerned, but it is moving upward and it will be interesting to see how it changes as new data arrives. It's certainly one of the things I'll be keeping my eye on.
Update: One thing I forgot to talk about is how this announcement will affect the chances that either the Fed or Congress will give the economy more help. I don't think this will have much of an impact on the Fed's decision, they weren't likely to do much more before and, since this call is unlikely to be news to members of the FOMC, it won't have much impact on what they do.
But it does make it less likely that Congress will do anything further. Congress is reluctant to provide further stimulus anyway, and even though this call says nothing about the speed of the recovery and does not guarantee that we won't have a double dip, this gives Congress (and the White House) some cover. Both can argue that although the recovery is slower than we'd hoped and expected, the past stimulus helped us turn the corner and at this point we've done all that we can do. We just need to be patient. As I've made clear here in past posts, I think that's a mistake, there's still more that can and should be done for labor markets in particular -- I fear stagnation is ahead and we need to take insurance against that outcome now -- but this announcement makes such action less likely.