Today, we are going to get what is likely a positive GDP. There are a number of factors that are contributing to the improving data point, not the least of which are the inventory liquidation, and the faster fall of imports than domestic consumption.

We’ll dissect the numbers later this morn, but a positive GDP raises the following question: Is the Recession actually over?

We know that the Great Recession is over — the panic and expectation that the economic world was coming to an end probably ended sometime in March or April.

But is the “regular recession” over?

We begin looking at the NBER definition:

“A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.” (emphasis added)

That definition raises an interesting question. If we look at the 5 factors NBER considers — GDP, real income, employment, industrial production, and wholesale-retail sales — its somewhat ambiguous  to say unequivocally that the recession is over. We are still losing an inordinate number of jobs (250k+ / mo), industrial production has improved, but is soft, retail sales have been mostly flat, and real income has been negative for a decade.

Perhaps the bimodal definition the NBER uses is outdated: Read literally, their definition suggests that there are only two options, either the economy is expanding or contracting.

It might be worthwhile to consider a third possibility: None of the above. The economy might have reached a state of stasis — a balance where it neither expands nor contracts.

I believe that the NBER was too quick to declare the 2001 recession over. The job loss and lack real income improvement was offset by the economic activity that the ultralow rates caused — in terms of credit driven activity in Retail, Housing, and on Wall Street.

I assume that the NBER believes that normally, the transitional phase of the economy from recession to expansion is quick enough that it needs no specific name or even any definitional recognition.

That might not work so well this time.

Given the current 33.1 hour work week, we might not see a real improvement in employment for years, as firms simply ramp up worker hours towards a fuller 40 hour work week, as opposed to hiring.

Perhaps when the NBER releases their next Memo from the Business Cycle Dating Committee they might consider refining their definition (or at least acknowledging) the current, and somewhat unusual historic anomaly of an Extended Transition Phase.

GDP out at 8:30 am

~~~

Previously:
The Great Recession is Over! Long Live the Ordinary Recession . . . (July 31st, 2009)

http://www.ritholtz.com/blog/2009/07/great-recession-over-long-live-ordinary-recession/

Category: Economy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

28 Responses to “Is the Recession Over ? (Extended Transition Phase)”

  1. Sorry to get all wonky on you . . .

  2. BR,

    that’s fine wonk~ though, with this: “Perhaps when the NBER releases their next Memo from the Business Cycle Dating Committee they might consider refining their definition (or at least acknowledging) the current, and somewhat unusual historic anomaly of an Extended Transition Phase.”

    somehow, I don’t see NBER going with:

    “We’re going to wind up with an Economy shot-through with the Plasticizer of ‘new’ Regulation, while the ’stimulators’/’bailors’ pick winners ‘n losers..

    should be Good Times..”
    http://www.ritholtz.com/blog/2008/12/chicago-repudiation/#comment-135385
    http://www.thefreedictionary.com/plasticizer

  3. Bruce in Tn says:

    http://money.cnn.com/galleries/2009/news/0910/gallery.economic_recovery/index.html

    Are things really getting better?

    The economy is forecast to have grown in the last three months by the largest amount since the summer of 2007, but there are signs that things are still getting worse.

  4. Greg0658 says:

    “wonky” … you .. wordly paper pusher … :-) .. “the Great Recession is over” ? .. just talkin off the top of my head using knowledge collected from here there & everywhere .. NOT White Papered with footnotes from PhDd Geniuses

    I Don’t Think So … there is too much undistributed debt onto the wrong (right) people (your BarryTown flavor) .. inter(intra)country flow and balance is all messed up
    cue .. Lifes the Same I’m Moving in Stereo / Its All Messed Up

  5. PithyDog says:

    BR says:
    “We know that the Great Recession is over — the panic and expectation that the economic world was coming to an end probably ended sometime in March or April.”

    If Washington is not stopped (derailed) going 150 miles per hour, the “great recession” will be coming when inflation hits and we see 30-40% interest rates, no?

    In 1980 overspending was at 13%, we saw interest rates at 20%
    Today overspending (Thanks to the criminals in Wash.) is 120%! Printing oodles of green paper, still worth something, for now.
    Help me out here…

  6. handelsblatt says:

    At least the consumer still thinks that things are getting worse…

    http://1.bp.blogspot.com/_8rpY5fQK-UQ/SuehvJWL00I/AAAAAAAAIQY/OeYnYFrpRqQ/s1600-h/cc3.png

    We’ll see…

  7. Bruce in Tn says:

    http://www.cnbc.com/id/33529078

    US Holiday Spending May Be Cut Again: Survey

    “Two-thirds of U.S. adults plan to spend less this holiday season and 6 percent say they still are carrying debt from last year’s holiday purchases, according a new Consumer Reports Holiday Shopping Poll released on Thursday.

    As recession lingers on Main Street and job losses mount, 65 percent of Americans say they plan to cut overall holiday expenses such as gifts, travel and entertaining.”

  8. Doc at the Radar Station says:

    Michael Pettis links to this article regarding “quality of GDP” that’s an interesting read:

    http://chovanec.wordpress.com/2009/10/26/chinas-quality-of-gdp/

  9. IvoZ says:

    Well Barry, you seem to be willing to argue with the arguments of the mainstream. I think you know very well that:

    1) The pop in Q3 GDP was a lot due to consumption simulus (cars, houses)
    2) A positive GDP has nothing to say about recession or not (Q3 2009 is a lot like Q2 2008)
    3) The way GDP is calculated is not to be trusted (hedonics etc.). (Better look at final sales based GDP.) Same for unemployment and job losses.
    4) The structural problems were papared over (literally) with green shoots of freshly printed green bills (figuratively), so the only thing that has been changed is the speed of decline and time it will take. This “recovery” is mega artificial. Withdraw stimulus and the depression is coming back.

    ~~~

    BR: The debate I was engaging in looked at whether there are only 2 states of the economy — expansion or contraction. You seem to be missing the Macro for the Micro.

    Regardless, I’ve discussed all of those items extensively here. Use the search feature to check out Hedonics, Positive GDP recessions, and Government Stimulus.

  10. bsneath says:

    Possibly hedge funds, tax policies and global competition have been too successful at concentrating wealth and reducing working class and real economy wages. The success of investment banking in these “worst of times” may be an indicator of ongoing trends.

    There simply is not enough money flowing through the real economy to sustain a recovery. If your wages are dropping, your credit card rates and fees are going up and your retirement “nest egg” is disappearing, how are you going to react?

  11. jc says:

    Our tax dollars at work!

    Mutual funds use Fed bucks to buy bonds. Mutual funds – including those run by T. Rowe Price (TROW) and BlackRock (BLK) – are using Fed financing to reap 15%-plus returns with limited risk. The Fed’s TALF (Term Asset-Backed Securities Loan Facility) offers low-cost financing to buy AAA-rated bonds backed by consumer and business loans, as well as commercial mortgages. Investors can borrow up to 95% of the bonds’ value by pledging the securities and some additional collateral, and have no obligation to repay the loan beyond the collateral – in essence shifting most of the potential losses to the government. In the words of one fund manager: “This is one of those opportunities that, as an investor, we have to take advantage of.”

  12. Transor Z says:

    Nice post, Barry. Along the lines of your point about stasis, it also depends on how you look at the idea of trough. As you’ve mentioned it’s very possible to have a positive quarter of GDP in the midst of a recession. Similarly, it’s overly literal to treat the March low point as THE low from which to benchmark the whole event.

  13. [...] Ritholz asks:  “Is the Recession Over?”  My answer: Not for Main Street, hell no. Related posts:Dollar Doom — Monthly Chart [...]

  14. davossherman@gmail.com says:

    There are a few things that define a depression. Unemployment above 20% is one of them and we have 21% unemployment. GDP is so baked I myself wouldn’t use it to determine where we are on the map.

  15. IvoZ says:

    The quality of GDP article above is pretty good. One thing that it misses is: if GDP is created by debt, then there are 2 possibilities:

    1) Debt is used for increasing productivity or in a positive NPV project.

    2) Debt is used for consumption. In this case we have negative capital formation. So we have positive GDP, but value is being destroyed (like eating away your capital). And people are cheering it, because – you see – GDP is positive!

    Using GDP to measure economic performance is misleading in itself, even if GDP is properly calculated. Then add all the distortions of how GDP is calculated! Using GDP is like using an earnings or revenue number, while ignoring the balance sheet effects to achieve them.

  16. JasRas says:

    So to me the definition leaves the question: Define trough.

    They do not say it is only GDP, but everyone seems fixated on that as the marker for “trough” It seems that GDP is very much like a lot of other economic and financial terms and can be easily manipulated through a variety of means to look “good” even when things are not so much.

  17. Bruce in Tn says:

    Top Stories
    Burger King profit slips for first quarter- AP

    Restaurant chain Burger King Corp. says its fiscal first-quarter profit slipped 6 percent as recession weary diners stayed home
    ….When cheap hamburgers aren’t selling, it would be hard to say the recession is over…

  18. Greg0658 says:

    jc at 8:24 am .. blood boiling restatement .. “using Fed financing to reap 15%+ returns”
    “Its All Messed Up” but thats TBTF capitalism for ya .. the fiscal blood has gotta pump

  19. ashpelham2 says:

    It all seems so simple to a common man like myself…..We’ve been working to cut costs at the top level all the way down to the grocery isle for years. We’ve reached the point where if we expect to pay less for goods and services, there cannot be meaningful gains in employment. You do not get “less” with “more”. I liken it to diet food companies telling you to buy their foods to lose weight. You don’t lose weight by eating, and you don’t lose costs at the manufacturing/service level by hiring.

  20. [...] incentivizing, or bailing out various sectors: Autos, Residential RE, and Fed spending. As expected, Inventory reduction helped, and unexpectedly, increasing imports [...]

  21. [...] incentivizing, or bailing out various sectors: Autos, Residential RE, and Fed spending. As expected, Inventory reduction helped, and unexpectedly, increasing imports [...]

  22. Mike S says:

    They are not going to call an end to this recession until we have flat employment. At least, they shouldn’t.

    It is BS when we have a growing economy but flat employment. Who in the hell cares about GDP unless we have growing jobs and wages.

  23. [...] of this number.  Nor do I think we should declare The Great Recession a thing of the past.  Barry Ritholtz writes: If we look at the 5 factors NBER considers — GDP, real income, employment, industrial [...]

  24. [...] Barry Ritholz assesses the conclusion that the GDP numbers mean an end to the Great Recession: [...]

  25. franklin411 says:

    But but but what happened to the right wing economic theory that government spending actually hampers GDP growth because it allegedly crowds out private investment? How can Cash for Clunkers be causing the recovery and at the same time be hampering it? If Cash for Clunkers is producing the recovery we’re seeing now, shouldn’t we extend and expand this and other programs? How about a massive government hiring program to put people to work doing necessary jobs (preschool, processing GI Bill benefits, etc..)?

    Milton Friedman drove us from January 1981 to January 2009. Thank God he is nothing but a rotten corpse today.

    Viva Keynes!

  26. [...] the National Bureau of Economic Research uses to define a recession, FusionIQ CEO Barry Ritholtz writes at The Big [...]

  27. [...] Barry Ritholz assesses the conclusion that the GDP numbers mean an end to the Great Recession: [...]

  28. [...] Is the Recession Over ? Extended Transition Phase  (October 29th, 2009) [...]