Is the recession really over?
April 6, 2010Jon Brooks 1 Comment »Economist Jeff Frankel, who is a member of the committee that officially calls the beginning and end of recessions, says last week’s announcement that the economy added jobs in March has put a nail in the coffin of the Great Recession. But economist Mark Thoma is more cautious.
First, Frankel:
Job market confirms end of recession
The recession is over. The last piece has fallen into place, with the BLS announcement that employment rose in March.
Identifying the beginnings and ends of recessions has been difficult in recent decades because the two most important indicators, output and employment, have sometimes behaved differently from each other. Most notoriously, in the recovery that began in November 2001, employment lagged far behind economic growth. If one had gone by the labor market, one might have called it a three year recession. But if one had gone by GDP, one might have wondered whether there was a recession at all.
This time around, the difficulty is not so great. True, the magnitude of job loss after December 2007 was unparalleled since the 1930s. It was severe even relative to the loss of GDP. But contrary to some impressions, the labor market in this recovery has not lagged unusually far behind the rest of the economy. It always lags behind somewhat: due to costs of search, hiring and training, firms wait until the recovery is reasonably well established before adding workers to the payroll. But by either of two criteria, the lag has not been unusually long this time. First, the three months of greatest job loss virtually coincided with the three months of greatest output loss, in the first quarter of 2009, as had also been the the case in the 1991 and 2001 recessions.
By July 2009, job market indicators were showing their first signs of life. Second, with the latest figures, employment changes have now turned positive. This is the more definitive criterion, because a recovery is defined as a period of increasing economic activity. The nine month wait was painful. But the lag between positive income growth (June 2009) and positive job growth (March 2010) turned out to be shorter than in the preceding two recessions (one to two years)…
And here’s Thoma’s response:
Jeff Frankel — a member of the NBER Business Cycle Dating Committee — says: The recession is over.
He is basing this conclusion on the recent job market number showing positive employment growth:
…with the latest figures, employment changes have now turned positive. This is the more definitive criterion, because a recovery is defined as a period of increasing economic activity, not a period when economic activity is high. The nine month wait was painful. But the lag between positive income growth (June 2009) and positive job growth (March 2010) turned out to be shorter than in the preceding two recessions (one to two years). …
He may well be right, but I’m waiting for more than one month of somewhat encouraging employment data before coming to that conclusion. It’s always possible that one month is a blip, not a trend. In addition, the conclusion is based upon the fact that labor markets are exhibiting positive growth, but positive growth is all that is required, the strength of the growth is not the determining factor. However, even though growth is positive, it is very sluggish and as David Altig notes, at current rates of job creation, the unemployment rate will still be over 9% a year from now. So this is by no means an “all clear” signal for labor markets.
April 28th, 2010 at 9:00 am
Our home business was really affected by the Economic recession, we have to cut jobs just to cover up our losses. fortunately, we have already recovered. `