This Recession is Over

Daniel Gross, writing for Newsweek, finds that two of his favorite economic forecasters have predicted an end to the recession, starting ... now. We're growing, everybody! We're a real economy! Let's look at the evidence:


The Macroeconomic Advisers, a St. Louis consulting firm that calculates a monthly GDP, finds  third quarter GDP tracking at a healthy 2.4 percent clip, up from the 0.1 percent decline throughout the second quarter. For comparison, 2.8 percent GDP growth is about where we were in 2006 -- it's not extraordinary, or even very good -- but it's not a recession. It's difficult to verify that statistic officially, because the Bureau of Economic Analysis takes months to estimate and revise quarterly GDP growth. But Gross calls for backup and finds it at the Economic Cycles Research Institute.

ECRI asks us to ignore the most talked-about economic indicators -- like consumer spending, which looks ugly, and unemployment, which looks even worse -- because they are lagging indicators of economic health. Instead, it breaks down leading indicators into long-term (credit, housing, productivity, and profits) and short-term (stocks, jobless claims) and tracks upticks that are pronounced, persistent and pervasive.

ECRI finds the long-term indicators have been on the rise since December 2008 and the short termers have all begun to rebound. For example, here you can see quite clearly the recent peak in jobless claims.

So is it only a matter of time before unemployment, the most public indicator of them all, joins the recovery party? Not so fast. The last two recessions -- in the early 90s and after 9/11 -- were shallow drops in GDP corresponding with lengthy periods of lingering unemployment. There are plenty of theories for this -- I've documented some, such as structual changes to the manufacturing industry and the failed promise of US innovation, here -- but the pull-up is that we have no idea how long unemployment will continue to grow or how fast it will subside after all other economic engines are go. As Gross concludes: "The recession is over! Let the jobless recovery begin!"