Recently ended recession differs from those of past years

By Ray Perryman

We have grown accustomed to instant gratification and 24/7 communication, and it seems somewhat odd to have just learned this week that the recession which began in December 2007 "officially" ended in June - June 2009! Remember, however, it was about a year after the start of this most recent downturn - the longest in U.S. history since World War II - that we received word that we were really in a recession.

The news that the recession ended some 15 months ago was delivered by the same group that determined its start - the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER). Those of us in the forecasting business would like to find a gig where we could predict with the advantage of months of hindsight, but there were good reasons to wait until all of the facts are available.

In June 2009, according to the committee, the U.S. economy stopped shrinking and began an ascent. Since that time, the business cycle reports have been on the positive side of the ledger.

By definition, a recession is a significant decline in economic activity that spreads across the economy and lasts more than a few months. It usually involves GDP, income, employment, industrial production, and wholesale-retail sales. Traditionally, the period of decline or negative growth has been defined by a rule of thumb as two quarters of consecutive GDP decline. This broad measure of output began its upward, though bumpy, rise in the third quarter of last year, which is quite consistent with the June date.

The Great Recession, as some are calling the current situation, differs from those in the past in terms of duration. Since World War II, the average length of the nation's 11 recessions had been 10 months. Previous to the 18-month time span of the December 2007-June 2009 recession, the two longest postwar periods of decline were those of 1973-1975 and 1981-1982. Each of these lasted approximately 16 months and each was driven almost entirely by external oil shocks.

The recently ended recession also differs from many of the previous recessions in the speed of recovery. In the past, the return to growth was a relatively quick process. As noted by the NBER committee, however, although the overall economic reports for the nation are now positive, there is certainly no assumption that the U.S. economy has returned to complete health. Rather, in making their determination of the official end of the recession, the committee offered no conclusions as to when the economy would begin operating at its normal capacity.

From the White House to the house on the corner with the picket fence, thoughts are that the recovery which began some 15 months ago is still not progressing very rapidly. President Obama said in a speech on Monday that it was going "to take more time to resolve."

Evidence of that phenomenon is quite apparent. Although real GDP and industrial production began their upward trek during the summer of 2009, growth in GDP has steadily declined from its high of 5.0 percent expansion in the last quarter of 2009 to 3.70 percent and 1.60 percent for the first two quarters of this year, respectively. Fortunately, an upturn in residential investment and acceleration in business investment, as well as federal, state, and local government expenditures, have helped temper the slowdown.

Moreover, the economy lost 7.3 million jobs during the Great Recession and now that we are in the era of recovery, employment expansion seems to be taking a circuitous route on its pilgrimage of progress. The number of those without jobs remains abnormally high, and the number of new unemployment applicants has been slow to decline.

Even though the NBER committee declared the recession over and noted that the recovery now has 15 months under its belt, many Americans are still feeling the financial stress of the downturn and can muster little of the enthusiasm that would normally accompany such news.