September 20, 2010

The ‘Great Recession’ Is Over, Says Economic Research Bureau

Economists, underwhelmed by the news, say recovery still feels like a recession

Not only has the U.S. recession officially ended, but it ended way back in June 2009, the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) announced Monday.

But if it feels like the United States is still in a never-ending recession, that's because the recovery is slow and looks a whole lot like the recession that the NBER--the nation's official recession arbiter--has declared to have ended over a year ago.

Although the recovery began 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," the NBER noted in a release. "Rather, the committee determined only that the recession ended and a recovery began in that month."

The "Great Recession," as it has been called, lasted 18 months. That makes it the longest of any recession since World War II, according to the NBER. Previously, the longest post-war recessions were from 1973 to 1975 and 1981 to 1982, both of which lasted 16 months.

Any Downturn After June 2009 Would Be a New Recession

Any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007. The NBER defines a recession as a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. Economic activity is usually below normal in the early stages of an expansion, and it sometimes remains so well into the expansion.

Economists were underwhelmed by the announcement that the recession is officially over.

"I'm not 100% sure that there is a ton to say about this release. It doesn't tell us a tremendous amount about the strength of the recovery or if it will continue in coming quarters," said Tom Simons, a money market economist and vice president of fixed income with Jefferies & Co. in New York. "However, it does confirm that the data over the past 13 months have indicated expansionary economic activity and that the recovery was led by growth in manufacturing. "

Joel Naroff, president and chief economist of Naroff Economic Advisors in Holland, Pennsylvania, noted that the NBER is typically "a little slow on the uptake," and that it's not unusual for the committee to take a year to determine that a recession is over.

'Everybody Thinks We're Still in a Recession'

Yet the evidence suggests that the recession doesn't feel like it's over, Naroff said.

In speaking engagements, when asking the audience how many people believe the recession is over, "if more than one or two people raise their hands, I'm shocked," he said. "Everybody thinks we're still in a recession. Consumer confidence levels indicate we're in a recession even though we've been out of a recession for 15 months now. This recovery still feels like a recession. In this world where job security is defined by the ability to cross the street and get another job, people continue to be uncertain, and they're still worried that they might lose their jobs."

Steve Blitz, senior economist with New York-based Majestic Research, said the timing of the recession's end was no real surprise.

"Most economists had thought the recession had ended in June 2009," Blitz said. "The value of saying the recession ended certainly makes it easier when people do charts, so that's good. But I'm not so sure in this truly post-post-industrial age whether or not the timing of the end of the recession means as much as it used to."

Looking back earlier in the post-war period, a steep recessionary decline in output was usually followed by a steep increase in output, Blitz said. But with the 1990-91 and 2001 recessions and now the current recession, "the snapbacks take a lot longer," he said.

"These more recent recessions were much more on the financial side, and we now have much more of a service sector economy," Blitz said. Manufacturers lay off and hire workers quickly. In this recession, we were much more of a global economy than we were. When it's over is less clear because it takes the economy much longer to bounce back now. We live in a different world we now."

Read about the Federal Reserve's response to fears about a double-dip recession on AdvisorOne.com.

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