Is the Great Recession Over? Depends Who You Ask

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America's most quoted economist, Mark Zandi, chief economist at Moody's Analytics, has a hot new quote: "The Great Recession is over." Zandi made the pronouncement on CBS News over the weekend.

Although some analysts will agree, the economists at the National Bureau of Economic Research (NBER) might offer a different assessment. The NBER defines the beginnings and ends of recessions, and when it called the beginning of the current recession -- which began in December 2007, a date that was finally determined in December of 2008 -- it said that employment was the most important factor in defining the timing of the current slowdown: "The committee determined that the decline in economic activity in 2008 met the standard for a recession . . . . The 1.2 million drop in payroll employment so far this year was the biggest factor in determining the start of the contraction. . ."In the name of consistency, if NBER is going to use employment on the way into the recession, it only makes sense to use employment on the way out too. And on that basis, the recession is not over.

Technical Ends

To be fair, Zandi's headline does not capture the nuance in his position. Zandi did point out that the economy isn't out of the woods yet, but says it appears to have turned the corner. Zandi noted that the recession is over only "in a very technical sense. It's probably in a sense only an economist can really appreciate. Not until we start to see jobs will, I think, people believe that the recession is over," according to CBS News.

And Zandi thinks that will happen in 2010. As Zandi said, "I'm hopeful that, in the next few months, certainly by the spring and summer, we'll start to see some job growth. If history is any guide, when GDP rises . . . then, a quarter or two down the road, businesses start on add to their payrolls, so they start to hire. So that means, come April, May, June, I'd expect some job growth."

This is not just an academic issue. As I have written previously, jobs are America's No. 1 political issue. If you don't have one, you suffer significant misery. You can't buy as much as you used to, you are constantly worrying about your family's future, you have to spend your days pounding the pavement and having the door slammed in your face, and you worry that you'll never get back in the workforce again.

No Boost in Consumer Spending, No Hot New Technologies


Although it's widely believed that a recession ends after two consecutive quarters of positive GDP growth, that's not always true. As I previously noted, the NBER uses many factors to determine the timing of recessions, with GDP and employment being the most important.

Assuming the NBER still applies the same reasoning, until the economy starts creating jobs steadily, the NBER shouldn't call the recession over. And the latest job statistics reveal that the economy lost 208,000 jobs in the fourth quarter of 2009. The 5.7% GDP growth rate in the fourth quarter was caused by businesses restocking their depleted inventories.

While such restocking will benefit the companies that make the inventory, that alone is not sufficient to produce new jobs. One way to get job creation going would be to encourage increased consumer spending, which accounts for 67% of GDP growth. But that's tough when you have a 10% unemployment rate and people can't borrow money to make up for their lack of income.

Another great spur for the creation of new jobs would be for businesses to begin investing in new technologies that can transform their operations -- like the Internet did in the 1990s and PCs did in the 1980s. Such investments spawn new companies that create jobs en masse.

Absent either of those things, sadly, the Great Recession lives on.
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