Washington – With little fanfare, the National Bureau of Economic Research declared Monday that the so-called Great Recession is over, determining that the U.S. economy hit bottom in June 2009 and began a long, sluggish rebound.
“In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity,” the bureau said in a statement Monday. “Rather, the committee determined only that the recession ended and a recovery began in that month.”
The bureau officially dates recessions, and concluded that this one was the longest on record, save for the Great Depression. The so-called Great Recession lasted 18 months, two months longer than the recessions of 1973-75 and 1981-82.
For many Americans, it still feels like recession. The unemployment rate has been stuck around 9.6 percent for months, almost 15 million Americans are without work and dozens more are working two jobs or are in jobs that pay less than their previous ones.
“I think this (statement) will forever cement economists as being out of touch. This is cold comfort for someone who is still unemployed, and it’s more a matter of getting the accounting right for economic history,” said economist Douglas Holtz-Eakin, a former director of the Congressional Budget Office and the president of the American Action Forum, a center-right policy research group.
The fact that the bureau needed almost 15 months since the recession’s official end to declare that it was over speaks to the economic challenge the United States faces. The bureau’s Business Cycle Dating Committee waited to make a final decision until key government data revisions had occurred to gauge what had been the gross domestic product — the broadest measure of the production of goods and services — and gross domestic income.
The committee noted that while growth and income were up from last year’s lows they were well below the peaks of 2007.
Recessions often are described as two consecutive quarters of economic contraction, but they’re more a period of falling economic activity across the economy and lasting more than a few months. The bureau’s researchers evaluate data on income, employment and industrial production, as well as sales.
In what could provide some cover to the Obama administration, struggling with the perception that it hasn’t done enough to boost employment, the committee members noted that the bottom in hiring usually comes many months after a bottom in contraction.
After the 2001-03 recession, employment bottomed 21 months later, and employment hit its low six months after the end of the latest recession, the bureau said.
The bureau, headquartered in Cambridge, Mass., also said that economic activity could remain below normal for some time after a recession.
That leaves the economy vulnerable to shocks. Few economists now predict a dip back into recession, but the slow growth leaves room for contraction if European debt problems further stall a global rebound. A disruption to oil supplies that sharply increases energy prices also could be a tipping point.
A shock to the financial system, not the usual business cycle of ups and downs, caused the Great Recession. This shock came partly from households and banks that took on too much debt and had insufficient cash to adjust when rising mortgage delinquencies and foreclosures began to hit banks hard and a housing crisis took root. Households and the private sector continue to pay down debt, a painful process called de-leveraging.
“By any measurement, we still have a very leveraged household sector,” said Carmen Reinhart, a University of Maryland economist and co-author of “This Time Is Different,” a history of financial crises over 800 years. “A lot of these things, it’s not that policy can provide a quick fix … they do take time.”
In a Sept. 13 paper titled “Diminished Expectations, Double Dips and External Shocks: The Decade After the Fall,” Reinhart examined financial shocks such as the 1929 stock-market crash, the 1973 oil crisis and 15 severe post-World War II financial crises around the world. Her conclusion: For a decade after these disruptions, economic growth and income remained subpar, and in most cases unemployment stayed higher than before the crisis for well more than a decade.
Some economists argue that perhaps it’s different for the United States compared with other nations because it remains the world’s richest nation and the main engine of the global economy. Reinhart doesn’t think so.
“It’s not like they didn’t have a surge in credit, or a current account deficit, or a boom in real estate. Does any of that sound familiar? The symptoms are the symptoms,” she said, noting that historical data from across the globe suggest a U.S. recovery that takes many years.
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