The NBER Calls It

Today's announcement from the NBER Business Cycle Dating Committee:

[A] trough in business activity occurred in the U.S. economy in June 2009. The trough marks the end of the recession that began in December 2007 and the beginning of an expansion. The recession lasted 18 months, which makes it the longest of any recession since World War II. Previously the longest postwar recessions were those of 1973-75 and 1981-82, both of which lasted 16 months.

In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month. A recession is a period of falling 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. The trough marks the end of the declining phase and the start of the rising phase of the business cycle. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion.

While this was the correct call in terms of consistency with their definition and past practice (and I thought they should have made it sooner), it highlights the limitations of the "recession"/"expansion" dichotomy in describing the state of the economy. As they were careful to note, the economy continues to operate substantially below capacity. The "expansion" state is about the rate of change, not the (still lousy) level; as the NBER's FAQ puts it:

Q: Isn't a recession a period of diminished economic activity?

A: It's more accurate to say that a recession—the way we use the word—is a period of diminishing activity rather than diminished activity.

So, since June, we've been in a period of non-diminishing activity. That's certainly better than continuing contraction, but growth has not been fast enough to make a substantial dent in unemployment.

In the chart below, the red line shows retail and food service sales, and the blue line is the industrial production index, both normalized to 100 at the Dec. 2007 peak. Both turn up around the end of 2009, but 14 months into the recovery, their levels remain below the previous peak. Employment (green line) continued to fall for several months after the end of the recession and has only improved slightly since.

The phrase "growth recession" describes this state of slow growth and non-declining unemployment, but its somewhat cumbersome. I've found myself using the word "slump" alot.

See also: Mark Thoma and Catherine Rampell (who talked to Robert Gordon).