I am sure that I am not alone in feeling like Alice in Wonderland when reading news articles proclaiming the “recovery”. Unemployment remains stuck at a punishing level and housing foreclosures continue at an unabated rate. Calculated Risk has an excellent detailed article on the approach that is used by the National Bureau of Economic Research in its role as the official referee of recessions.

Recession Dating and a "Double Dip"

The first question of course is who, outside of professional economists, really cares about the technical definitions of recession and recovery. Any poll of American public opinion right now would show a strong majority feeling that there has been no end of the great recession in terms of the practical considerations that matter to them. However, politicians of all stripes grasp at economic straws and attempt to spin them to their advantage. Then there are people like me who are genuinely puzzled and confused about what is really going on. Using the available data to look under the hood of the recession provides us critters with something to do.

Calculated Risk looks at four metrics of economic activity and tracks them for the post war period in a series of graphs. These metrics are:

GDP, as measered by both real Gross Domestic Product and real Gross Domestic Income. This is the data which really drives NBER’s score calling.

Industrial Production

Employment

Real Personal Income

The other three are more likely to reflect what is happening with the economy as we actually experience it.

You can get into a lot of academic arguments about whether a prolonged period of generally sluggish economic performance constitutes one continuing recession or a double dip of two recessions coming close together. The period of the early 1980s is such a case and their will be similar arguments about the present period. However, I’m only interested in out present circumstances. The factors impacting the 1980s were very different from what is happening now.

Our present recession began at the end of 2007. The various metrics hit their lowest points to date during the second half of 2009 or the beginning of 2010. The GDP measures and Industrial Production began to show a pattern of improvement that really does look like recovery in the beginning of 2010. However, they have not returned to the level they had attained before the recession began. That is what constitutes full recovery. Employment and Personal Income do not show a pattern that looks like recovery. PI has increased by a modest amount. Employment has hardly budged from the bottom and appears to be heading back down again. The bottom for both of these measures was much lower than anything that has been seen since the great depression.

Employment is always a lagging economic indicator. Business activity has to show enough sustained recovery to give businesses the confidence to begin hiring new workers. However, one would expect to see some correlation between rising GDP and employment. That has not been happening. There are now tentative signs that GDP growth may be cooling off again. It is too early to make any conclusive determinations about that.

Since WW II we have become accustomed to a pattern of periodic short recessions of mild to moderate severity. It has given most of us a general sense of confidence that recovery is always just around the corner. This is a much more stable pattern than what was typical of the US economy prior to WW II. Many people are inclined to credit the New Deal regulatory regime for this stability. Since the 1980s the neoliberals in both parties have been on a sustained campaign of financial deregulation. It is really difficult to dismiss that deregulation as one of the major causes of the near collapse of the financial system in 2008. It is too early to tell if the recently passed financial regulation act has gone far enough in instituting a new regime.

Over the past 30 years the American labor market has undergone profound changes. In the 1980s we were told about the virtues of shifting from a manufacturing economy to a service economy. The manufacturing jobs that provided employment at sustainable wages for a huge portion of the American work force have been steadily shrinking in number. Some have been eliminated through automation and others have moved off shore. Now similar trends are beginning to impact many of the better paying service jobs. The real incomes for middle and working class Americans have been essentially stagnant over a long period. Much of the impact of these trends has been masked by two successive economic bubbles, a stock market bubble during the Clinton years and a housing bubble during the Bush years. These bubbles made it possible for Americans with stagnant incomes to go into debt to continue fueling a consumer oriented economy.

The post war US recessions have usually been mild enough to cure themselves with only a light touch of government intervention. The aggressive interest rates used by the Federal Reserve as a response to the high inflation of the late 1970s was about as heavy as it ever got. There are some definite indications that this recession is different. It is much deeper and it looks like it is going to be longer than anything that we have seen in the long post war period. The Obama administration and the Fed both appear to be confused and indecisive. The deficit/inflation hawks have one set of prescriptions and the neo-Keynesians have another. My own sense of the matter is that this is not a situation that can be expected to just take care of itself. It is going to require some bold and decisive intervention. I have difficulty seeing where that might come from in the present political landscape.