Yes, We’re Definitely in a Recovery, But…

In the jargon of business cycle analysts, economies are in expansion until they hit a peak (that was December 15, 2007) and then in a recession until they hit the trough. The evidence from the four-week moving average of first-time (initial) claims for unemployment insurance, which still shows a peak for the week ended April 4, 2009, points to May 15 as the trough. Other forecasters prefer June, July or even August 15, but in any case the overwhelming majority of forecasters believe we are now past the trough or bottom of the recession.

Business cycles by definition run from peak to peak with only one trough. That makes a “W,” which would have two troughs, impossible.

Some people refer to the recession that lasted from January to July, 1980 and the one from July 1981 to November 1982 as a single “W” experience, but that is just wrong. There were two separate recessions separated by one year of strong growth.

A “recovery” is the part of an expansion that tracks from the trough until all the ground lost in the recession has been made up. In this case, that could take a very long time.

The new data that revised GDP all the way back to 1929 show that real GDP, which is now measured in 2005 dollars, peaked in the second quarter of 2008 at $13,415.3 billion. After four consecutive quarters of decline, a record for the period since the advent of quarterly data in 1947, real GDP stood at $12,892.4 billion in the second quarter of 2009. That’s a plunge of $522.9 billion or 3.9 percent from the peak. That’s the deepest recession since 1937-1938 and thus the worst in the memory of all but the very oldest people in the US.

The overwhelming consensus is that it will take at least until the end of 2010 to make up that decline. Many forecasters expect it will be 2012 or 2013 before we see new economic records being set. Click here to read the full post and comment (Insights subscribers) »

The Recession Could Already Be Over

On May 15, Linda posted the Chicago Tribune article quoting me to the effect that the end of the recession was that day. In my conversation with the reporter, I suggested he contact Professor Robert J. Gordon at Northwestern University to check my contention that an accurate advance indicator of the trough (bottom) of every recession from the 1969-1970 one through the 2001 episode was the peak in the four-week moving average of initial claims for unemployment. Prof. Gordon has been a member of the Business Cycle Dating Committee (BCDC) of the National Bureau of Economic Research since its inception in 1978 and is a keen student of business cycles.

Unbeknownst to me at the time, Dr. Gordon had already published on May 1 a paper proving this point exactly. Feel free to read the paper, “Green Shoot or Dead Twig: Can Unemployment Claims Predict the End of the American Recession?” to get all the technical details. Click here to read the full post and comment (Insights subscribers) »