Is the Recession Over Yet? The Fed Seems to Think So

Anyone waiting on official word proclaiming the end of this lousy, stinking recession would do well to find a comfortable seat. It turns out the signals -- and there are a lot of them -- are contradictory. Besides, a recession isn't officially over until the National Bureau of Economic Research says so, and they can take a very long time to decide.But that doesn't appear to be the case with the Federal Reserve. The central bank, it seems, is marking the end of the recession as of the end of the second quarter of last year, writes Barry Ritholtz, CEO and director of equity research at Fusion IQ. That's based on industrial production, which bottomed out last summer. But therein lies the rub, since industrial production is just one of many variables the NBER takes into account -- and the indicators are at odds, writes William Hester, senior financial analyst at the well-regarded Hussman Funds.

"One of the major indicators that the group follows is consistent with an economic recovery," Hester writes. "One is unimpressive, but not strongly at odds with a recovery. The two remaining indicators imply that the economy may still be in recession."

For the record, the primary indicators the NBER looks at are industrial production, real manufacturing and trade sales, real personal income less transfer payments, and nonfarm payrolls. You don't need to be an economist to know which ones are saying the recession is alive and well: income and payrolls.

"If the [NBER] still places 'particular emphasis' on personal income and employment, it's difficult to confidently conclude that the recession is over," writes Hester. Besides, with real gross domestic product still down more than 3% from its peak, it would be unprecedented for the NBER to declare an end to a recession with these mixed signals in place, Hester adds.

Apart from the fact that it's of little solace to the unemployed if the recession did indeed end last summer, we probably won't know for sure until next year. How's that? The last two recessions weren't pronounced well and truly dead by the NBER until more than a year-and-a-half after the fact. And, lest we forget, those were mild by comparison.
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