The Recession Is Over

From the WSJ:

The latest to weigh in on the debate is Christopher Rupkey, the New York-based chief financial economist at Bank of Tokyo-Mitsubishi UFJ. In a note this morning, he says a V-shaped recovery — in which the economy not only recovers but rebounds strongly — is “maybe not as far-fetched as you think”.

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As for claiming the recession may have already ended, he points to a series that in the past has proven a remarkably good indicator of business cycle troughs: weekly claims for unemployment benefits. That series peaked in the week of March 28 when a seasonally adjusted 674,000 new claims were filed; it has since retreated though it remains historically high. If that peak holds, it means the recession likely ended in April or May, he said.

I agree that using the numbers for unemployment are a good leading indicator, but it is only one of the measures. The only thing that I would caution those using it as an indicator would be how the numbers are playing out. Why are the numbers going down? The same reason they shot up so quickly. Unemployment benefits were extended, so many of the unemployed that were not "on the books" because they had exhausted their benefits were suddenly back on the books. Now benefits are starting to expire and those long unemployed are beginning to drop "off the books" again, not because they found work. So while the numbers show unemployment improving, it may be a bit of a false hope and some noise in the data.

What I am watching is job growth, not unemployment shrinking. When the employed can go to work and not fear a pink slip then the recession will be over. I think many are at the point where they have cut the fat so much that they can't cut much more. Those with benefits that have been less than motivated to find a job are going to start looking aggressively. Once the State and Federal Governments figure out how to cut some fat we will be ready to begin building again.

I am in the camp that thinks the recession may be over or soon will be. The thing about recessions is that they aren't officially recognized to begin or end until it has already occurred. They are like the housing market in this respect. If you are waiting for housing prices to "turn around" before you buy, then you have already missed the "sweet spot" that you have been waiting for.

As for a "V" recovery, I just don't see that happening. I think this December will see better numbers than 2008, but only slightly. However, I think that will be the stimulus that consumer confidence needs to begin the upswing. So look for slow to no growth from here to October. In November and December it will begin to pickup as the other side of the "U" recovery begins. By summer 2010 we will definitely be on the upswing, but hopefully with a more moderate angle than the mid 2000's.

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NBER Announces Recession

The National Bureau of Economic Research (NBER) has announced that December of 2007 has the peak of economic activity. This confirms what many already felt. I recall talking with my Brother-in-law in just prior to New Years Eve in December of 2007 about this. I told him that despite the fact that it had not been announced that we were in a recession, we were in a recession.

Calculated Risk has been using December 2007 as the beginning of the recession for some time now in his research.

From NBER: Determination of the December 2007 Peak in Economic Activity

The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28. The committee maintains a chronology of the beginning and ending dates (months and quarters) of U.S. recessions. The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.
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The committee determined that the decline in economic activity in 2008 met the standard for a recession, as set forth in the second paragraph of this document. All evidence other than the ambiguous movements of the quarterly product-side measure of domestic production confirmed that conclusion. Many of these indicators, including monthly data on the largest component of GDP, consumption, have declined sharply in recent months.

So there it is. We have been in recession for one year now. The only question remaining now is how long will it take for the contraction to end.

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