Is the US Recession Over? The (un)official view.

By Eoin Fahy , Tuesday, 11th August 2009 | 0 comments

The recession in the US is probably over.  Key measures of activity in the economy have recovered, and although some continue to fall, on the whole the economy is now expanding.  This does not of course mean that the US economy is set to boom - indeed there are good reasons to suggest the recovery will be slow - but it does mark a key milestone on the road back to normality for the global economy.

The question of when a recession ends is not left to chance in the US.  There is in fact a more-or-less official body in existence whose sole job is to tell the world that a recession has started or ended.  It is called (wait for it....) the Business Cycle Dating Committee of the National Bureau for Economic Research.  It meets whenever necessary to debate and decide on start and end dates for recessions, taking into account a wide range of economic indicators, such as employment, GDP growth, retail and business sales, industrial production, and so on.

The committee has already told us that the economy 'officially' entered recession in December of 2007.  There's just one snag though - they didn't tell us that until a full year later, in December 2008.  [Click here for the link to their report in full]. So if the recession has indeed already ended, we might not be 'officially' told until, say, the late summer of 2010. 

That's not much use to anyone, quite frankly, so instead let's take a look at the main economic indicators in the US, and see whether they show that the economy is now growing again.

1. GDP.    While this is the most comprehensive measure of activity, it is quite dated by the time it is published.  The most up to date numbers we have are for the period from April to June, during which time GDP fell, but any turn in the economy probably came too late to be picked up by this indicator.  Verdict: INCONCLUSIVE.

2. Industrial production. So far, there has been no monthly increase.  Verdict: NO, does not suggest the recession has ended.

3. Retail sales.  The weakest point for retail sales was in December, and there has been a recovery of about 2% since then.  Verdict: YES, suggests recession has ended.

4.House sales.  The trough for new home sales was in January, followed by a 17% recovery since then.  The trough for existing home sales was also in January, followed by a 7% increase.  Verdict: YES, suggests recession has ended.

5.Consumer confidence. This reached its low in February, and has almost doubled since then.  Verdict: YES, suggests recession has ended.

6. ISM index of manufacturing business confidence.  This important index hit its low point in December, and has risen sharply since then.  Verdict: YES, suggests recession has ended.

7. Car Sales.  At their low point in April, rose modestly in May and June then surged massively in July helped by a new government 'scrappage' scheme.  Verdict: YES suggests recession has ended, though July number was artificially high.

8. Employment.  This has continued to fall steadily.  Verdict: NO, does not suggest recession has ended.  [But note that employment is usually one of the very last indicators to recover in an economic cycle, as employers are generally quite reluctant to hire new workers until they are quite sure that demand for their products and services has definitely improved].

It's also worth thinking about the length of the recession to date, and comparing it to previous recessions, as this might tell us whether it is reasonable to suggest that the recession has already ended.  Well, if the recession did indeed end last month, then it lasted for 19 months.  The average recession since World War 2 lasted ten months, with the longest being in 1973-75, of 16 months.  So the 2007-2009 recession would be the longest in modern economic times. [Click here for a table detailing all recessions since 1854!]

Taking all this into consideration, I believe that the balance of evidence suggests that the recession has indeed ended in the US.  This should not be taken as a certainty of course.  It's possible that the economy could suffer a relapse as government and central bank assistance measures are removed, or if there were another round of major bank difficulties.  And of course even if the recession is over, that is certainly not the same thing as saying that the recovery is going to be very strong - click here for a recent post on why the recovery may actually be quite sluggish. 

But while the world's economic problems are far - very far - from over, certainly the end of the US recession, if confirmed, will mark a significant milestone along the way to recovery.

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