Why There's No Joy Over the Recession's End

Maybe we need a new definition of "recession."

It will come as no relief to the 15 million Americans who are unemployed, but a committee of august economists has finally declared that the recession is officially over. In fact, it ended more than a year ago. No, you didn't miss the celebration. There was none.

For all the drama of the last few years, the final act of the Great Recession was remarkably anticlimactic. A group of economists from the National Bureau of Economic Research, a private, nonprofit group, has finally decided that the recession ended in June 2009. That's the point at which economic activity stopped falling and began rising. Economists call this a "trough," since it's the low point at which the economy bottomed out. It took 15 months to know this for sure because the number-crunchers like to have a year's worth of data to analyze--and there's no hurry to make a determination that has little effect on the real economy.

Ordinarily, it might boost consumer spirits to have official confirmation that we're on the way back to prosperity. Yet even economists seem mystified by a "recovery" characterized by sky-high unemployment, falling incomes, record poverty, and an endless housing bust. In its recession-ending announcement, the NBER noted that hitting the trough in June 2009 wasn't exactly like making it to happy hour on Friday afternoon. It was more like the unidentifiable moment when you stop getting more drunk and start getting less drunk. "The committee did not conclude that economic conditions since that month have been favorable," the NBER explained, "or that the economy has returned to operating at normal capacity?. The trough marks the end of the declining phase and the start of the rising phase of the business cycle."

The problem now is that the rising phase has nearly stopped rising. After a year's worth of decent growth fueled by government stimulus spending, Federal Reserve maneuvers, and a rebounding stock market, the recovery has clearly stalled. Companies have stopped laying people off in droves, but are barely hiring. State and local governments, once robust employers, have been slashing their own payrolls as their budgets fall. The housing bust seems headed for a fifth miserable year, with sales tumbling following the end of government incentives and prices likely to follow downward. The stock market, in response to all the gloom, has sagged since April.

The NBER's pronouncement means that if the economy slips back into recession, it will officially be two back-to-back recessions, not a single prolonged one. To most people, the distinction makes little difference. Yet by dating the end of the recession, the NBER provides a better way of comparing today's economy with earlier periods--and guessing what might happen next.

Jobs usually take a while to return once a recession has officially ended, and this time obviously is no different. The surprising thing is that in one way, the job market today is bouncing back faster than it did after prior recessions. The total level of employment bottomed out in December 2009, according to the NBER--just six months after the recession ended. After the recession that ended in November 2001, it took 21 months for employment to drift down to its low point and turn upward again. That might signal that we're doing better now than during the "jobless recovery" that followed the 2001 recession.

The reason it doesn't feel that way is that the 2007-2009 recession was longer and deeper than prior downturns--and we now know how much longer and deeper. With an end date to the Great Recession, we know that it lasted 18 months. The average length of a recession since World War II has been 11 months, and the longest, before the one we just endured, was 16 months. Forecasting firm IHS Global Insight points out that the latest recession was also the most severe since World War II, with GDP falling 4.1 percent from its peak before the recession to the low point in 2009. We still haven't regained all that lost ground.

That makes the current "recovery" worse than the lowest moments of earlier recession. The current unemployment rate is 9.6 percent--a tenth of a point higher than in June 2009, when we hit that trough. When the 2001 recession ended, unemployment was just 5.5 percent. When the 1991 recession ended, unemployment was 6.8 percent. Compared with today, those troughs seem like mountaintops.

The question now is whether the economy will continue its slow improvement or sink back into another bout of recession, like it did in the early 1980s. Back then, a short recession gave way to a mirage recovery, followed by a longer recession. Overall, the economy was in recession for 22 months out of 35 between January 1980 and November 1982.

IHS pegs the risk of a double-dip recession this time at about 25 percent. Others think the odds are higher and a few argue that we're already in the second dip. What economists agree on is that it will feel like a recession for a long time, no matter what the statistics say. When the unemployed begin to find work, home values stabilize, consumers start spending, and the government stops stimulating, that will signal an end to the nation's psychological recession. Maybe then, we'll celebrate.


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