Are We Out Of The Recession? Not!
Are we out of the recession? We at FRANCONOMICS don't think so at the time of this writing (November 2009). Quarter over quarter growth needs to be sustained for the technically focused pundits like Bernanke to admit that we are not out of the recession yet. One more quarter over quarter decline, and we are still in the middle of the recession!
Typically, two quarter over quarter GDP declines define a recession. However, there are other parameters which the NBER (National Bureau of Economic Research) includes to decide when a recession begins and when it ends. For example, the current recession began in the fourth quarter of 2007, when we had one, not two, quarter of negative GDP growth…
Further, it should not matter to the average American what the NBER says or what bureaucrats like Bernanke say; for, unemployment keeps going up. On Nov 6th, 2009, official unemployment shot past the 10% mark, and now stands at 10.2%, a 26 year high. This amounts to a 25% to 30% real unemployment / underemployment combined. Further, foreclosures are going up, not down. House prices have not stabilized: those who are buying houses now will experience falling housing prices in the near future, once the Obama Tax Credit of $8000 for new buyers expires by the end of November 2009.
In short, people are losing jobs, houses, spouses (sometimes, when someone loses a job / home, s/he loses the spouse as well). So just because a Bernanke jawbones that we are out of the recession, we are out of the recession, we are out of the recession, are we really out of it?? Not!
Update on December 20, 2009: The $8000 Tax Credit for first-time home-buyers has now been extended until the middle of next year. Also, a new tax credit of up to $6500 has been provided for to help “move-up” buyers. However, the fact that banks are milking Americans on credit-card debts, coupled with inability of those who keep losing jobs to pay their mortgages, means that foreclosures will keep rising. As long as Americans keep losing jobs, houses, and spouses, we can’t say that the recession is over!
Update on September 27, 2010: If you look at the real GDP data below, you can see that for the last quarter, the GDP, annualized, was at $13 trillion. This is less than where the GDP stood in the first 3 quarters of 2008, when the economy was officially in recession. So, just because the GDP has grown quarter over quarter for the last four quarters since the 2nd quarter (June) of 2009, it does not mean the recession is over. What the NBER should do is wait until the GDP catches up with where it stood before the current recession began, and then declare the recession to be over. So, as per this analysis, the economy is very much in a recession. Other data, like the unemployment of 9.6%, the poverty levels (1 in 7 Americans in below poverty line) corroborate that the economy is indeed in a recession.
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What the NBER is touting that since it is now proven that there have been two quarter over quarter growths in the GDP since June 2009, the recession is over. But this is a faulty measure, for as we discussed above, the GDP is still below where it was in the fourth quarter of 2007 when this great recession began. If the GDP contracts again, the NBER touts that it will be the onset of a new recession. But we think that it will be the second –dip of the current recession, if that were to happen. While we don’t want at FRANconomics.com that the GDP starts contracting again, it is obvious from the above chart that if that were to happen even for one more quarter, the GDP will keep staying below the peak GDP in the fourth quarter of 2007 when the recession began; so we will continue to be in the great recession, and it will become a “double-dip” recession. No wonder, three-fourths of Americans currently feel that we are in the middle of a recession:
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Also see the write-up on Real Unemployment.
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