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Why Recession End Matters

ECRI's Lakshman Achuthan spoke with WNYC radio about the end of recession and where we go from here.

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Financial 411: Is the Recession Really Over?

The recent recession, which began in December 2007 officially ended in June 2009, making it the longest recession since World War II.

President Barack Obama reacted to the news during a town-hall style meeting broadcast by CNBC. He said that while the recession may be technically over, for those out of work or struggling, it is still very real.

"My goal here is not to try to convince you that everything's where it needs be, it's not," Obama said. "That's why I ran for president. But what I am saying is, is that we're moving in the right direction."

The president fielded a series of questions ranging from the Tea Party to the economy.  He used the occasion to push back on criticisms that he is "anti-business."

"Businesses now are profitable. The financial markets are stabilized. We haven't increased taxes on businesses," he said. "Actually, we have instituted about 50 tax cuts, many of them going to businesses large and small."

Stock markets responded positively to the news that the recession ended over a year ago. Investors also pushed markets up in advance of Tuesday's Federal Reserve meeting. The S&P 500, the most closely-watched stock index, gained 17 points to close at 1,143. The Dow Jones added 146 points to close at 10,754.
Economic Panel Reports Latest Recession Ended in 2009

The recession that began in December 2007 officially ended in June 2009. The organization responsible for dating business cycles, the National Bureau of Economic Research, concluded that the recession that began in 2007 in December ended 18 months later, making it the longest recession since World War II.

Several months before June 2009, Lakshman Achuthan, with the Economic Cycle Research Institute, forecast that the recession would end that summer. He spoke with WNYC on Monday afternoon.

Q: Shall we call it a victory lap?

LA: Well, you know, it doesn't feel completely like a victory lap because I think a lot of people listening are saying, 'well, what recovery?' You know, they dated it, but it doesn't feel that different.

Q: So beyond those feelings, what is the significance -- and meaning -- of today's announcement?

LA: It's objective. That's very important. The National Bureau of Economic Research has been at this for a very long time, since the early part of the last century, dating peaks and troughs in the business cycle. They have an objective methodology. I know everybody has an opinion about where things are. They have kind of a quantified way of going about this that's non-partisan, so I think it serves a very useful purpose in giving us the lay of the land that we're trying to navigate here. In essence, right, when you say a recession ends, to be clear it simply means that the economy has made it into the recovery room where the process of healing begins. And anyone who's been in the recovery room knows it still hurts a lot when you're in there. You don't feel a lot better just because you're in the recovery room, and I think that that's where we are -- we continue to be today.  

Q: You forecast a year and a half ago that the recession would end in the summer of 2009. It took the National Bureau of Economic Research until now to reach this conclusion. You said you have a methodological style, but how do you make these decisions about the beginning and end of recessions, and how did you forecast it?

LA: The first question, how did you determine the beginning and end of a recession: you look at really big measures of the economy right outside your window. So, when you hear GDP or jobs numbers, or sales or income numbers -- any of those types of numbers -- they're all what we call coincident, roughly, with what's going on with the economic cycle. And so, GDP, it's been going up for well over a year, it's recovered 70 percent of what it lost during the recession, so that's a no-brainer, that's easy, it's recovering. On the other hand, the other extreme, is jobs, which are equally important. I have to underscore that. You cannot have a recovery without jobs. And so I think they were waiting to see that you had some material recovery in jobs. Now, material is, you know, all in the eye of the beholder. Here, we have recovered. Nine percent, only nine percent of the private sector jobs lost during the recession, in contrast to recovering 70 percent of the GDP lost. That's why it doesn't feel like a recovery yet, because so many jobs still are waiting to be recovered.

Q: There seems to be this sense that a double-dip, a second recession, is only a slim chance, but a chance nonetheless. Unemployment is high, and economic growth has been slow. What would a second recession look like, if that were to happen?

LA: Well, you know, it would look nasty. It would feel kind of like the 70s or the early 80s. We have vague memories of that being a rough time. If you had a new recession start, the unemployment rate would rise in a very persistent way from here. And looking at leading indicators, the best thing I can say is that we're locked in a slowdown right now, we're still growing, a new recession is not yet imminent.

 


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