The NBER’s Business Cycle Dating Committee, of which I am a member, announced this morning that June 2009 was the trough of the recession that began in December 2007. It was the longest recession since the 1930s.
It is the fate of the Committee to be teased mercilessly every time we make one of our formal declarations of a turning point in the economy. We get it from both directions: We waited too late to call the end of the recession, or we did it too early. (Occasionally someone makes both criticisms simultaneously!) Even The Daily Show got in on the fun this time.
On the one hand, people say “Who needs the NBER to tell us what we already knew?” It is true that GDP has been expanding for 5 quarters now, and that most economists have therefore considered the recession over for some time. But it is not that easy to call the precise trough, for several reasons: different indicators say different things regarding the precise date of the bottom, data get revised, and we could not have been confident until now that a hypothetical new downturn would count as a second recession instead of a continuation of the first one. Does the 15-month lag in this announcement seem like a long time? It took us 18 months to declare the end of the preceding recession (2001).
On the other hand, people say “It doesn’t feel like the recession is over to me or to people I know. How can the NBER be so out of touch?” The main answer, here: The proposition that the recession is over is only a statement that things are no longer getting worse; it is not a statement that we are back to good times. The economy still feels bad for good reason: it is bad. In particular the unemployment rate is still very high. But things are much better now than they were 18 months ago, when the economy was in freefall, or in mid-2009, when we were at the bottom of the worst downturn since the Great Depression. It takes a long time to emerge fully from a hole that deep. And, to be sure, the current pace of the expansion is disappointingly slow, especially with respect to jobs. But GDP and employment are, at least, rising.
The other question that we are asked the most is whether one should worry about a double dip recession. The NBER does not forecast. I can speak only for myself. The possibility of a new downturn is indeed a concern, especially because Washington has been unable to deliver a sensible fiscal response. (A sensible policy in my view would consist of some more stimulus, as in February 2009, designed to maximize bang-for-the-buck, coupled with simultaneous steps to move the long-term fiscal path back toward responsibility, such as social security reform). But even without an appropriate fiscal response, I am optimistic that we can avoid sliding back into a second outright recession. More likely, we will have a slow continuation of the current (inadequate) recovery.