Did the recession actually end?

by Nin-Hai Tseng, reporter


FORTUNE -- The National Bureau of Economic Research is known to be slow at declaring the starts and stops of a recession, but it looks as if it might have been right to hold off on any bold declarations this time around, potentially proving many policymakers and Wall Street analysts wrong.

Many economists say the recession ended over a year ago -- last June or July -- even while NBER (the ones tasked to make the formal call) has hesitated from doing so. As early as April, the organization's committee of academic economists said that it would be "premature" to declare an end to the recession that started in December 2007.

Coincidence or not, it's easy to see why the NBER hasn't jumped on the recovery bandwagon just yet. Call it a "painfully slow" or "anemic" recovery, but the latest economic indicators suggest that it at least feels like anything but a recovery, even while Fed Chairman Ben Bernanke this week assured better days are here already. While he warned there's still "a considerable way to go" for a full recovery, "the economy seems to have stabilized and is expanding again."

True, the economy is better than it was than at the height of the financial crisis. Yet it's hard not to wonder if Bernanke and others might have been too quick to say the U.S. economy started to go in recovery mode last summer when the economic indicators, if not the general mood, suggests that the recession never really quite ended.

The jobless rate has improved little, judging by the US Labor Department's report today. Payrolls from the private sector increased by 71,000 after a 31,000 gain in June that was smaller than officials previously reported. Overall employment fell by 131,000 with the jobless rate holding stubbornly high at 9.5%.

Spending shows no signs of picking up

When individuals and companies save cash at near record levels, as they are today, it's a sign they're nervous about the future. Non-financial companies in the S&P 500 index reported $837 billion in cash at end of March, a 26% increase over the previous year's $665 billion. This is unusually high. Companies are holding cash equal to 10% of their value - nearly two times higher than the average recorded since 1999, according to S&P. (See also Corporate cash hoarding isn't sustainable)

Meanwhile, consumers are also hoarding cash. The savings rate for American households rose to 6.4% in June -- the highest level in a year, the U.S. Commerce Department reported earlier this week.

Then there is GDP growth. Much of the rise we saw earlier this year was supported by huge government spending through a $787 billion stimulus package and factories restocking inventory after not having done so for a while. GDP growth in the second quarter slowed to 2.4%, compared with 3.7% the previous quarter. It could fall lower later this year, as many of those who thought the recession was over now say the economy could fall back into a recession.

The NBER usually takes its time to declare the beginnings and endings of a recession. It's not in the job of acting on economic forecasts, but rather recording economic events throughout history based on actual indicators.

It wasn't until December 2008 that the NBER formally declared that the latest recession started in December 2007. And it took almost two years before the organization stated that the 2001 recession was over.

Who knows when the NBER will declare the end of this latest recession. Whatever date it falls on, last summer certainly didn't feel like the end of the recession even while many economists argue that it was. And in the coming year, it might feel even less like it.

The NBER has never declared a double-dip recession, but believes it is basically one continuous recession with a period of growth occurring and then a slip back to a downturn. At the rate we're going, it looks like a double-dip is plausible. To top of page

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