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Tuesday, September 15, 2009

The Recession is Over?

Economists seem to be using new math to guage the start and end of this recession. When I learned economics in high school, I was taught that a recession was any period in which there were two quarters of negative growth in gross domestic product. That's why I had trouble understanding why economists everywhere began, at the end of 2008, to say that this current recession began at the end of 2007. At the end of 2007, the economy was still growing. Now, the roots of the recession certainly started there but the technical definition is nothing like what these economists were using to define the beginning of the recession.

Now, the fed chairman is using similar logic to mark the end of the recession.

Federal Reserve Chairman Ben Bernanke said Tuesday that the worst recession since the 1930s is probably over.

Bernanke said the economy likely is growing now, but it won't be sufficient to prevent the unemployment rate, now at a 26-year high of 9.7 percent, from rising
.

Technically, a recession ends when GDP stops dropping and begins growing. Of course, that happened at the end of 1933 and no one says the great depression ended in 1933.

So, the technical end of the recession and the end of the recession as the public will see it are going to be two totally different things. So, while it's fine for Chairman Bernanke to say that he believes the recession is over, it's not something I would advise the president to say. It's very likely that we will see growth in this quarter and that woud be a technical end to the recession.

The technical end of the recession is not the most important thing regardless. What's most important is the pace of the recovery once the recession ends. The recession of 1982-1983 was deep and long. Yet, once the economy recovered, the recovery was booming. That's the sort of recovery I am sure the president is hoping for. That will be the ultimate test of his policies.

Unemployment is currently near 10%. We expect that to grow even higher. Much more important than the technical end of the recession will be just how quickly we see jobs growth and more than that, how much jobs will grow once that happens.

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