They finally did it. The National Bureau of Economic Research today declared an official end to the Great Recession. The group announced that “a trough in business activity occurred in the U.S. economy in June 2009.” According to NBER, the recession lasted 18 months, the longest in the post-World War II period. The previous records–16 months–were set in 1973-75 and again in 1981-82.
The announcement is hardly surprising. Many economists advised for much of the past year that the recession probably ended sometime in mid-2009. For the millions who remain unemployed, the recession roars on, of course, or at least something that looks and feels like one. But from the perspective of macroeconomics, at least as it’s practiced by the cycle dating committee at NBER, the deepest economic contraction since the 1930s has been issued a formal death certificate.
Way back in March 2009, I wondered When Will It End? NBER has now offered the official response. It comes 15 months after the recession ended, but that’s about par for the course with this group. Timely observations have never been its strong point.
In the March 2009 post, I noted that the initial jobless claims have a history of peaking well ahead of the official end of recessions. As I wrote at the time,
In the past six recessions, the four-week moving average of weekly jobless claims as a percentage of current nonfarm payrolls peaked either in the month the recession formally ended (as per NBER) or the month directly ahead of the recession’s formal end. By this measure, in just one case since 1969 did the jobless claims peak arrive much earlier: the 1969-70 recession ended in November 1970; the jobless claims peak came in May 1970.
One incentive for considering initial jobless claims and other metrics for an early clue on when recessions end is the recognition that NBER takes its sweet time in making formal pronouncements about cyclical peaks and troughs. Today’s news certainly doesn’t change that standard.
Meanwhile, the simple four-week moving average of initial jobless claims (seasonally adjusted) proved its worth as a reliable early indicator of the cyclical trough. The four-week average peaked at 643,000 for the week through April 4, 2009—about two months ahead of the official end of the recession, as the chart below shows.
Unfortunately, learning of the official calendrical end of the recession doesn’t diminish the possibility that a new recession may be brewing. That risk may be low, but the odds that sluggish growth will prevail well into next year and perhaps beyond are uncomfortably high. The real danger is that there may little practical distinction between a new recession vs. an extended mediocre expansion. But at least we have closure about what NBER’s thinking re: the cycle.
And in case you’re wondering, NBER also advised that “any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007.” Hmmm. What are they trying to suggest? Whatever it is, we may have to wait a while for the official answer.