While economists, professional and amateur, argue the prognosis of the current recession, nobody disagrees that it’s the worst in the post-World War II era. Record-breaking numbers have popped up in numerous longstanding economic measurements. However, a few months’ improvement in The Conference Board’s leading economic indicators has persuaded a growing number of expert observers to believe the end of the recession is imminent, or even has already begun.
They may be right. Lagging economic indicators are looking less bad. Although still crazy high at more than 600,000 a week, new claims for unemployment benefits have been off their peaks for a couple of months, an historical indicator of a recession preparing to bottom out, as bonddad and other commentators have explained. So it’s completely reasonable that many are saying the end of the recession is near, even though James Hamilton summarized his recent dissection of the changes in the leading indicators with: "The main reason we think the economy is improving is because many of us think the economy is improving."
Anybody, including a consensus of prominent anybodies, can make a bad prediction. At the beginning of this month, for instance, just before the U.S. Bureau of Labor Statistics issued its jobs report, the consensus of economists and other financial experts was that 520,000 jobs would count as officially lost in May. Instead, the loss was only 345,000 (subject to updating). This week, the consensus prediction is a further net loss of 370,000. Nobody I know would bet a month’s wages on that number. But it’s not the exact figure that matters, it’s the trend. Horrific as the number is (at four times the jobs lost last June), if the prediction is right, 370,000 will be the second-best showing in 10 months, clocking in at half the number of jobs lost in January. That’s likely to encourage even more predictions that recovery is imminent.
But whether the recession ends tomorrow or sometime in 2011, as Nouriel “Dr. Doom” Roubini still believes is possible, the question now is whether the ensuing recovery will break records as the weakest in the post-war era. If it does, as seems extremely likely without additional government stimulus, the technical end of the recession will be about as welcome as dog shit to the person on the street. Because the country will be afflicted by that oxymoronic phenomenon known as the “jobless recovery,” the third consecutive such creature in the past 18 years. Economic growth without economic health.
It’s the habit of all recessions to continue financially eviscerating people for a time after a recovery officially begins. The populace has to start buying more goods and services and do so long enough to persuade businesses that this is no flash-in-the-pan but a sustainable upward trend that justifies rehiring laid-off workers and hiring new ones. So a turnaround in unemployment slightly “lags” other aspects of the economy, just as layoffs slightly lag at the beginning of a recession.
But something new has taken hold. In the first eight downturns after World War II, two months was the average time between when a recession officially ended and its associated unemployment rate stopped rising. Job growth was delayed but only moderately, so the way a recession was dated made perfect sense. However, the two recessions preceding the current one have blown that average all to hell. After the 1990-’91 recession, instead of two months, it took 16 before job growth started again. After the 2001 recession, it took 21 months for jobs to start recovering. As if that weren’t enough, it took 47 months – until January 2005 – before there were again as many people employed as in March 2001.
Experts call those two eight-month-long recessions mild. For instance, when the 2001 recession started, 132.5 million Americans were working. When it hit bottom, 130.9 million were. In contrast, when the current recession began 19 months ago, 138.2 million Americans were working. Last month, 132.2 million were. The symmetry of today's number and the number in 2001 is not comforting. The recession may be officially over next month, but come December, fewer Americans may have a job than had one at the bottom of the recession eight years ago.
It could get still worse than that. If the jobless recovery trend of the previous two downturns continues, we might not see a return to the number of Americans who were working in December 2007 - when the recession began - until 2013. By then, the country could be on the verge of another recession. And it may have reached that precipice without, once again, even beginning to address matters such as stagnant wages, severe underemployment, off-shored jobs, tiered wages-and-benefits packages, and other long-ignored problems of working Americans.
When the folks on the business cycle dating committee at the National Bureau of Economic Research get around to debating the official end of the recession, July or August or September 2009 may well be what they identify as the turnaround month. The month when the economy started growing again. We won’t get an instant reading on that. The NBER takes its time. It waited until November 2001 to announce that the last recession started in March 2001. It waited until July 2003 to announce that that recession had ended in November 2001. It waited until December 2008 to announce that the current recession got started in December 2007. So if you're a betting person and putting up a few bucks on a particular month, don't expect to collect anytime soon.
As a matter of fact, you'd be better off hanging onto those bucks. As useful for past and future comparisons as the bureau’s eventual announcement that the current recession has ended may be, it won’t tell us anything about what kind of recovery. Chances are it won’t be pretty. And by the time the bureau says its piece, we'll already be fully aware of that sad fact.