Is The Recession Really Over – Recession Ended in June 2009 News Reports Say

Is the recession really over?

That is the question a lot of people are asking today as newspapers, news websites, and television news shows lead with a headline that seems to declare that the economy is back to normal. Of course, this is not at all what is going on. This presents another opportunity to take a quick look at how financial facts and financial reporting are not always in sync.

First, the actual event that occurred is that the National Bureau of Economic Research, or NBER, released a statement saying that “a trough in business activity occurred in the U.S. economy in June 2009.” Obviously, this does NOT mean the economy is back to normal, a fact that the NBER statement goes out of its way to highlight.

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.

Why is every news outlet in America proclaiming that the recession is over then?

Technically, the recession is over, but that doesn’t necessarily mean what people think it means. Assuming the picture below depicts a hypothetical economic cycle of growth, or expansion, followed by decline, or contraction, the “end” of the first recession occurs at the lowest point of decline, as indicated by the red arrow.

Notice how this in no way implies that the economy has returned to normal. For one thing, there is no such thing as a “normal” economy. Technically, the economy is always growing, contracting, or flat. In other words, the economy is always moving. People like to think that a growing economy is “normal” but there is nothing more normal about growth than there is about a shrinking economy.

Looking at the picture above, no one would dispute that the red arrow points at the time when the economy stopped shrinking and started growing again. This is what it means when the recession is over. However, this DOES NOT mean that the economy has gotten back to where it was. In fact, in the graphic above, the economy goes through two more recessions before growing back to the highest point of expansion from the first economic cycle.

Declaring Recession Over

It is also important to realize that NBER is not a forecasting group. In other words, NBER does not make predictions about whether or not the economy has hit bottom. Instead, NBER looks at historic data and then determines where the bottom of economic contraction occurred. NBER is essentially looking at a graph like this, and pointing out where the lowest point of the trough occurred.

This also does not in any way state that the economy cannot go down from here. Economic expansions can be very short-lived. When a recession ends and a new one begins shortly thereafter, is often referred to a double-dip recession. That may still happen to the U.S. economy, or it may not. Either way, all that anyone is saying today is that there was some upward trend in the economy that started in June 2009. How much or how long that upward movement lasts, is still to be determined.

Finally, remember that this has NOTHING to do with the stock market, the real estate market, or any other financial markets. Economic data is tied to how much stuff the country is making, how much money the country is spending, and how many people are working. It is not about how well the stock market is doing or if stocks are going to make money again.

Tags: economic conditions, economic cycle, economy, expansion, national bureau of economic research, NBER, News, recession