Here’s a question for members of the elite, nonpartisan group of economists that will have the final word in declaring that the recession is over.
What are you waiting for?
It’s time for the Business Cycle Dating Committee at the National Bureau of Economic Research to declare what economists and business leaders have known for a while — the recession is over.
True enough, unemployment continues to hover close to 10 percent. Moreover, half the nearly 15 million people looking for work and unable to find it have been jobless for six months or more.
Yet the U.S. economy is growing and has been doing so for nearly a year. Between the middle of 2009 and the first quarter of this year, the output of goods and services regained all but about 1 percent of what was lost in the recession that began in late 2007. Numerous forecasters expect the previous peak in inflation-adjusted gross domestic product to be surpassed no later than this summer.
"The arithmetic is such that in this quarter we will come pretty close to it," said Ken Mayland of ClearView Economics in Cleveland. "Certainly we'll pass the peak by the third quarter."
For sure, the increase in real GDP has not been spectacular. But the cumulative gain in output -- about 2.7 percent so far -- is large enough that the recognized arbiter for dating the beginning and end of recessions, the NBER committee, should acknowledge the obvious, that the recession is in the rear view mirror.
Economist Ray Stone, of Stone & McCarthy Research Associates, said that such a declaration "would be good for confidence.”
“Some people assume that we are still in a recession, but I don't think there's any question that it has ended,” Stone said. “There's always the possibility of a double dip, but at this point that would be another recession."
The committee traditionally has been supercautious in dating peaks and troughs of business cycles. Members took a year to decide that the last expansion ended in December 2007. But 2008 was a confusing year despite the financial crisis, and it wasn't until the failure of Lehman Brothers Holdings in September that the economy took an undisputed nosedive.
The NBER defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months,” that is normally apparent in real or inflation-adjusted GDP, real income, employment, industrial production and wholesale-retail sales.
Part of the committee's reluctance to pick a date for when the worst recession since the Depression ended is the lack of substantial job growth, according to the chairman, economist Robert E. Hall of the Hoover Institution at Stanford University.
"Real GDP began to grow in the summer of 2009 but employment continued to decline," Hall said in an NBER report. That divergence was the result of "the unprecedented growth of productivity in 2009," and the committee will have to decide "how to weigh output and employment in its definition of economic activity."
The NBER says it doesn’t have a fixed definition of economic activity, but instead examines and compares the behavior of various measures of broad activity: real GDP measured on the product and income sides, economy-wide employment, and real income. The committee also may consider indicators that do not cover the entire economy, such as real sales
A decision by NBER to change its analysis techniques would be like the Supreme Court dumping a longstanding legal precedent. In this case, that would be a mistake. The fact is, no one is sure how employers have managed to use their workers so much more efficiently, or whether whatever they have done could be repeated in a future downturn.
The downside to that jump in efficiency, of course, was that companies hired relatively few additional workers. The upside was that labor costs per unit of production fell and corporate profits are approaching pre-crisis levels.
However, since the end of 2009, private payroll employment slowly has begun to increase and government payrolls have taken a big jump as a result of temporary hiring for the 2010 census. Enough of those temp jobs probably disappeared this month to reduce overall payroll employment, but private payrolls probably rose faster than in earlier months -- at least that's what happened in June 1990 and 2000 as many census jobs ended, Stone said.
Meanwhile, the broad decline in labor costs has also reassured Federal Reserve Chairman Ben S. Bernanke and many of his colleagues that they could keep their target for overnight interest rates effectively at zero without adding to inflation pressures.
It also meant that there was plenty of room for President Obama to push for additional measures to stimulate the economy without worrying about inflation. Of course, many members of Congress keep resisting further stimulus -- mostly out of fear that financial markets would react badly to any increase in current budget deficits and bid up interest rates on longer-term government securities. There is also fear of a political backlash, however misplaced in the short run, to any measure that would increase the deficit.
On the other hand, there is no sign that prospective deficits are worrying investors. 10-year Treasury notes were yielding 3.2 percent last week and inflation-indexed notes with the same maturity were yielding only 1.17 percent. If there were significant worries about either inflation or the possibility that the U.S. government would default on its debt, those rates would be noticeably higher.
The big productivity gains and the stubbornly high jobless rate also mean that if a way can be found to get the unemployed back to work, the labor supply is there to allow a period of sustained, rapid economic growth without inflation. The benefit from that for American families is obvious. Less obvious is that the federal government's increased flow of tax revenue would help bring down the budget deficit that everyone is so worried about.
Tell us what you think about this column, using the comments box below.