Is the recession over?
Filed under: Economy
Is the recession over? Not bloody likely. First of all, calling the current economic contraction a recession is like calling Bubonic Plague a slight illness. We are clearly in the worst economic contraction since the Great Depression. Secondly, the official organization that dates recessions -- the National Bureau of Economic Research (NBER) -- defines the current recession based primarily on job losses -- not two consecutive quarters of GDP contraction.
And by that measure the NBER judged that the recession began in December 2007. With about 6.5 million jobs lost since then and another 546,000 initial jobless claims in the most recent July week for which statistics are available, it is difficult to see how anyone could make the claim that the recession is over. To be fair, that number is down from previous months but it still suggests a substantial number of lost jobs.
But despite the lack of compelling evidence to bolster its case, Newsweek is declaring that the recession is over. It looks like Newsweek's 'evidence' hinges on its analysis of the $787 billion stimulus package. It presents White House numbers claiming that 1.5 million jobs will be 'saved or created' by the fourth quarter of 2009 and another 3.5 million by the fourth quarter of 2010. But the White House suggests that only 10 percent of those stimulus jobs will be saved or created this year.
There is a significant amount of approximation in the employment statistics so it is difficult to assess the 3.5 million jobs that the White House expects will be saved or created. I doubt that the official employment statistics count the number of jobs saved.
But the official employment numbers do include estimates for the number of jobs created by something called a birth-death model -- which added 800,000 jobs to the official employment statistics due to the creation of jobs from small businesses that it assumed were born in the last year. Considering venture capital's recent nuclear winter, it may be that those 800,000 assumed jobs don't really exist at all.
The key to getting out of the recession is to revive consumer demand in the short-run and to create new corporate demand in the long-run so that the economy is not so dependent on over-leveraged consumers to buy more stuff that they could not afford -- given their contracting incomes -- without the debt. If consumer demand rises -- as the unemployed get jobs -- this would boost GDP growth.
However, such demand is not imminent. How so? Companies have been relying on cost cutting to beat earnings expectations. That cost cutting reduces consumer demand since cost cutting means more consumers without jobs who spend less and can't get increasingly scarce loans to pay for new consumer goods -- such as back-to-school items -- the purchase of which is expected to slump by 7.7 percent.
Some of the stimulus money is going to areas that might create new corporate demand -- such as electronic medical records, alternative energy, and smart electrical grids. But my guess is that unless entrepreneurs and venture capitalists step in to fuel new industries, the stimulus plan's efforts to create corporate demand will be a pilot light that gets blown out.
In the meantime, there is not much evidence on which to base a claim that the recession is over. The NBER took almost a year to declare the start of the current recession as December 2007. If the economy actually starts to create enough new jobs to offset the ones that have been lost, I hope the NBER will mark the recession's end more promptly.
In the meantime, what is your view? Is the recession over for you?
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing.
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Reader Comments (Page 1 of 13)
7-26-2009 @ 10:22AM
Joe said...
If the Democrats really cared about health care, they would be willing to spend the stimulus money on it. But no...all the Democrats are intersted in is power. You can't tell me that the millions spent on studying the Salt Marsh Field Mouse in Nancy Pelosi's district is more important than providing health insurance to people without health insurance. The Democrats are a bunch of frauds. They care about the people as much as I care about the meat loaf that I had last week.
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7-26-2009 @ 10:36AM
pat said...
Joe, we could always stick with the Republican plan, couldn't we?
Republican 10-Point Plan for Health Care:
1. 50 Million Uninsured in America
2. Another 25 Million Underinsured
3. Employer-Based Coverage Plummets Below 60%
4. Employer Health Costs to Jump by 9% in 2010
5. One in Five Americans Forced to Postpone Care
6. 62% of U.S. Bankruptcies Involve Medical Bills
7. Current Health Care Costs Already Fueling Job Losses
8. 94% of Health Insurance Markets in U.S Now "Highly Concentrated"
9. Dramatic Decline in Emergency Room Capacity
10. Perpetuating Red State Health Care Failure
7-26-2009 @ 11:10AM
Bill said...
JOE:
Why do you blame only the Democrats? All a politician wants is to be re-elected and most will say/do almost anything they think will help them.
You are like far to many ignorant people who always blame one side or the other: YOU & they never have enough common sense to blame BOTH.
YOU are like far to many radicals on the LEFT & the RIGHT- you are a brain-dead, radical Dem. or Rep. instead of being an AMERICAN FIRST, willing to compromise for what is best for the USA and not just some political party.
7-26-2009 @ 11:38AM
kbain0909 said...
electronic medical rcords. please how is this improving healthcare? and i knpw i heard all the lame reasons for it, poppycock. all it is doing is making things easier some physicians, and easier for the insurance companies and organizations like JACHO to monitor, while the patients healthcare dwindles to nothing they are still collecting their paychecks (those phoney so and so are just a bunch of theifs, its the old addage "let them eat cake"). Tell me how this is improving healthcare for anyone.?nada! ziltch, just putting all the money right back into the same hands and taking all the available healthcare that was there an elliminaing it by putting the money into a non patient area. who do these big bussiness a's think they are kidding. its time for americans to wake up. i think most are brain washed into thinking that this government gives a rats A. capitolism is money for the big bussiness no matter how they have to do it, lie cheat and steal from the hard working people. what happened to the tax money that was suppose to prevent this recession that we are in. we suffer while the people who put us in the recession are still calling the shots and taking our hard earned money , so they can live hih on the hog. its all self serving them. has nothing to do with democrats or republicans, it has to do wih cold hearted, greedy, and unethical politicians in each others pockets, who have the tongue of a snake. therefore able to beguile the masses, its been done before and its being done again.
7-26-2009 @ 12:20PM
Neighbor said...
The recession is far from over, It's just now really beginning. The stimulus money was nothing more than payouts and payoffs. Look where it went and to who? With the Dow skyrocketing to 10k The crash is coming because the rise was based on maipulation and not true reversion back to the roots of this country and that's manufacturing. Not we invent it so china can make it and we buy it. Our kids have learned nintendo but few know what a wrench is anymore. Our teachers are not teachers, they are babysitters, treated as such and paid as such. Immigration? Hell no your ceo doesn't want to send illegals back. That his profit margin your talking about. Health care? Yeah right. The insurance industry hasn't lost a dime and isn't about to now. Politics?...lol No one has the balls to stand up and vote out! Wall Street? Time to pull the plug and run the hedge funds out of town. Create a seperate market that deals strickly in real companies and one for paper financials. Bust the to big to fail like the bells of years ago. Bulldoz the NYMEX and Chicago Merch. Demand responsibility for there actions. Not manipulation to conform to there desires. Put the dollar back on gold standard. Post the feds checkbook for all to see. Oil? another joke. Regulate it and the oil companies like a public utility. The let them come and ask for a rate reduction or hike....quarterly, not hourly! Bring back neighborhoods and take down the fences. Require teens work there senior year outdoors or community service. Remove cell phones from school grounds. This country has become brain dead from over communication and lack of responsibility for decisions. From the top down!
8-04-2009 @ 1:53PM
Tracy said...
It has nothing to do with the "Democrates" its the individual themselves making the democates look terrible. I wish that people would realize what negativity they inflict when they make poor choices, especially out of greed. It's the people themselves that make the democrates/republicans/ whatever party look bad. In general greed needs to turn into thinking about others. What I do agree on is stopping those who drive our system down. These individals do nothing with their life and expect others to pay for it all. This has got to stop! Lets quit supporting those who cannot support our structure. There are ways to support, community service for example, cleaning our roads, our communities, our schools, just to name a few. The attitude that I can live off of everybody else need to come to a complete halt!
7-26-2009 @ 7:39PM
Dan Read said...
You nailed it, Joe!
7-27-2009 @ 12:46PM
maximum joe said...
Pat, what's wrong with working for what you get? If people want health insurance than they need to take the effort to better themselves in their careers. If you flip burgers then no, you probably won't have insurance. Work for it, the libs make me sick wanting hand outs. Remember though, the world needs ditch diggers too.
7-27-2009 @ 2:28PM
James Putnam said...
As if the Republican neocon f wads were any better. You may be right Joe, but you couldn't be more wrong in not including Repugnant Kin.
7-26-2009 @ 10:24AM
tommy said...
Yes, the recession is over. We have been in a depression since at least Feb. 2009. "Real" unemployment is about 20% now. During the depression Of 1929-1945 it got up to 25%. This depression looks like it will be much worse than 1929-1945. Store food and ammunition because you will likely need both before this one is over.
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7-26-2009 @ 5:07PM
r morrison said...
right on tommy, i just got laid off & in riverside cnty calif. the rate just hit 14% no slowing down here..
7-26-2009 @ 5:05PM
marigwanna420 said...
i sure as hell hope the recession isnt over..... because when this one is over, it will be the start of a depression..... and couple that with global warming(extreme weather disasters) and tensions rising with our enemies.... we are all screwed
7-26-2009 @ 10:33AM
john said...
OVER? not likely. This of this- what got us here? toxic assets, housing, job loss, foreclosures, etc... right? Which of those has been resolved OR is even in the process of being resolved? NOT toxic/legacy assets- they sit on the books waiting to be sold at higher prices by firms that shouldn't have own then in first place, who refuse to write them down and take the hit to capital requirements, and who can't lend as much because of them. NOT housing- we will be dealing with this horror show FOR YEARS to burn on the foreclosures ALONE... not to mention IF commercial real estate goes bad, or if CC defaults kick in and bury another wave of consumers... NOT Job loss- we are still bleeding jobs to overseas, still closing businesses who can't make it, still NOT incentivizing business growth or development(and for the record who EVER heard of people referring to "save or create" jobs?? you mean we lose all BUT 3.5 MM and you did a nice job??).... SO if you don't deal with the root problems AND you spend TRILLIONS of money on the WRONG THINGS with MONEY YOU DO NOT HAVE, how could the recession be over? Not top it off with higher taxes which are a necessity to pay for all this wasted crap AT ABSOLUTELY THE WORST TIME POSSIBLE, nationalized health care(pay more and get less- sidenote- that will devestate the health care industry jobs on top of our current emploment problem), bailouts of systemic risk co's(CITI, AIG, GM), and a stimulus bill that has spent 6% so far and won't have any effect for 1 and 1/2 YEARS... OVER, not nearly..
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7-26-2009 @ 10:37AM
BOB said...
George w. Held us (The Taxpayer) up our ankles and shook until all the dollars fell out and his team scooped them up. Obama heard there was change left and he shaking until all the change is drained out on the ground. We will be even broker than we are now. Obama's going after our kids paycheck. Even though they can't work because there young, Obama's got time to drain them too. Its a shame most people can't see how bad things are all over the U.S.
Scream at your local representatives until things start to change. We need jobs!!!!
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7-26-2009 @ 2:10PM
Jen said...
The last 2 years of Bush was PELOSI/REID, and you can thank THEM for much of this. Bush wasn't a conservative, but he cut YOUR taxes, which the Dems are going to raise by letting the tax cuts expire. True conservatives want the govt the heck out of our lives, except for what the Constitution allows. And health care isn't a guaranteed right. The mess the govt has made of (democratic programs) Medicare and Medicaid should give even you a clue that they can't do a thing but raise costs, reduce care, and make paperwork nightmares. Really... at least educate yourself. It's the least you can do for the rest of us.
7-26-2009 @ 10:38AM
Croppy Cait said...
'Is the recession over?'
It's a joke, right?
Brahahahahahahahahahahahaha
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7-26-2009 @ 10:54AM
Economics 101 said...
The real question is, " can the American economy survive 3 more years of Barry "the Idiot" Obama?"
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7-26-2009 @ 2:42PM
bill said...
Makes one wonder just who "Newsweek" is in bed with.
I suspect there will be a slight up tick in the economy as a result of the obscene govt. spending, but the inflation that can't help but occur as a (completely predictable) result, will throw us into a second, soon to follow, recession. Just like in the 30's.
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7-26-2009 @ 10:46AM
Susan said...
I'm sick and tired of the Obama butt-kissing media telling us the recession is in recovery. Really? I live in Ohio, and let me tell you - it's real bad here. Thousands of laid off workers, businesses closing left and right, some business streets look like ghost towns. Tons of teachers laid off (I'm a teacher) and nothing promising for the future. Why can't the media be straight up - they try to play head games with us! Sad part is - many ignorant folks fall for their lies. I rarely watch the news anymore - because it's a sham!
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8-03-2009 @ 4:42PM
Tracy said...
I agree with you Susan, I am a Michigan native. Our neighborhoods are diminishing before our eyes. But, we can attribute to this ourselves. Do you buy products made in the USA? Can you find products Made in USA. This is what our problem is. People, we need to wake up and start over, building products back in the good ole USA. Then and only then can we rebuild to a brighter future. I am so sick of going into stores and picking up products that are made in China, Japan, Indonesia, India, everyelse besides the good ole USA. BUY AMERICAN. STOP BUYING THE GARBAGE THAT COMES BEYOND OUR USA BOARDERS...learn to go without and stop contributing to everybody eles but ourselves.