The recession: When did it end?

http://www.economist.com/world/united-states/displaystory.cfm?story_id=15911334&source=hptextfeature

A question of not just academic interest

Apr 15th 2010 | WASHINGTON, DC | From The Economist print edition

THE American recession is over. In the summer of 2009 real GDP and industrial production hit bottom and resumed growth, and expansion in both measures strengthened as the year ended. Industrial production has continued to grow in early 2010 as, in all likelihood, has output. By the end of the current quarter the American economy may have returned to its pre-recession peak in real GDP.

Most economists agree about all of this. Prominent voices like Northwestern University’s Robert Gordon, Harvard’s Jeffrey Frankel, and Stanford’s Robert Hall have declared the recession dead and gone. But those men all sit on the National Bureau of Economic Research’s recession-dating committee, responsible for pinpointing the beginning and end of business cycles. On April 12th that committee announced that it was not able to set an official end-date for the American recession.

That a date has not yet been chosen is not that unusual; the committee has taken longer to decide in past recessions. The choice to delay a conclusive statement may have been an act of caution, to avoid a black eye in the event that the economy contracts again before reaching its previous peak.

But the suggestion that the economic pain is not yet definitively over struck a discordant note amid cheerier headlines. Earlier in the month this paper expressed the hope that a needed transition in the American economy had begun, and others have gone further. The New York Times and Washington Post have both featured business columnists arguing that Americans are too pessimistic about the strength of the economy. BusinessWeek praised the success of Obamanomics on its cover. Newsweek’s cover announced, “America’s Back! The Remarkable Tale of Our Economic Turnaround”.

Some optimism is warranted. Recent data indicate that recovery in manufacturing is well established, and service-industry expansion has picked up pace in each of the past three months. Labour markets are finally improving; during the first quarter of this year employment grew by 162,000 or 1.4m, depending on which data set you use. And investors have bought the idea of recovery. The Dow Jones Industrial Average has risen by over 10% since early February, and recently closed above 11,000 for the first time since September 2008.

But full-throated cheerleading is premature. By Mr Gordon’s calculations, much of the data point to June 2009 as the likely recession end-date. Since then the American economy has seen a net deterioration in employment by about 900,000 workers. The performance is by far the worst nine-month stretch following a recession of any post-war downturn (see chart). The last time the American unemployment rate rose above 10%, during the recession of 1981-82, the economy added between 1m and 2.5m jobs in the first nine months of recovery.

Meanwhile, housing markets look shaky just as government schemes to support the sector are ending. The Federal Reserve is not cheering: on April 14th Ben Bernanke, the chairman, predicted a “moderate” recovery amidst “significant restraints”. Small-business confidence declined in March for a second month. Any number of unpredictable shocks, from a big sovereign default to rapid monetary tightening in overheating emerging markets, could undermine the recovery.

No vulnerability is so worrisome as unemployment. As of March, 15m Americans were jobless, while another 9m were unwillingly working only part-time. Knowing just when the recession ended will not be of much comfort to them.