Recession has officially ended BUT…

On 20th September 2010, it was announced that the US was out of recession officially. National Bureau of Economic Research (NBER) released the report. It stated that the recession officially ended in June 2009. The recession, which started in Dec 2007, lasted 18 months. It was the longest recession since World War II.  How did NBER come up with this deduction? The main numbers that were noted were the strong growth in real GDP and real GDI numbers since June 2009. The full list of the data NBER looked at is:

  • Macroeconomic Advisers’ monthly GDP (June)
  • The Stock-Watson index of monthly GDP (June)
  • Their index of monthly GDI (July)
  • An average of their two indexes of monthly GDP and GDI (June)
  • Real manufacturing and trade sales (June)
  • Index of Industrial Production (June)
  • Real personal income less transfers (October)
  • Aggregate hours of work in the total economy (October)
  • Payroll survey employment (December)
  • Household survey employment (December)

The trough dates are given in brackets. So, it can be seen that most of the data showed a trough in June. Take a look at http://www.nber.org/cycles/sept2010.html and http://www.nber.org/cycles/cyclesmain.html for more information.

When the recession started in Dec 2007, NBER called the beginning of the downturn only in Dec 2008. Now, the end of the downturn was called 15 months after it ended. Thus, this is a lagging indicator of the economy as the committee needs to confirm the numbers and data before calling the peaks and troughs. The markets, however, are leading indicators of the economy. Why do I say that? The markets have rallied a substantial percentage since June 2009. Thus, the recovery has already been priced into the markets long before. The STI has rallied around 750 points or 32% from 30th June 2009 till now. The DOW is at around 27% higher than June 2009. This shows that the markets always leads the economy by around 3-6 months (remember that markets bottomed in March 2009).

Yes, the recession has officially ended BUT (an extremely big BUT) not everything is rosy in America. The US is still in insurmountable debt of $13 trillion! Unemployment is still high at 9.6%! Unless all these have subsided, I will have minimal confidence in the US economy. Take a look at the chart below to see how much unemployment has grown since Dec 2007.

(Charts from http://www.usatoday.com/money/economy/2010-09-20-recession-over_N.htm?loc=interstitialskip)

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s