Q: When will we know we are out of the recession? When will the current recession end?
A: Most likely it already has.
Q: When will we know exactly when it ended?
A: Probably many months from now. This anomaly is due to the way we determine the end of a recession.
The official umpire of business cycles is the National Bureau of Economic Research, a private nonprofit organization. The NBER pioneered the measurement of overall economic activity in the 1930s and has been the recognized expert in business cycles ever since.
It makes sense to have a nongovernmental agency like the NBER determine the beginning and end of recessions. Politicians would love to have any recession begin under their predecessor and end as a result of their own policies.
The most common informal definition of a recession is six months or more of declining national output. Based on this definition, the end of any recession would simply be when the economy starts to grow again.
Rather than this single indicator, the NBER looks at a variety of macroeconomic measures such as overall production and sales, income and employment. As a result, the NBER definition of a recession is more than just a decline in output and reflects a more general deterioration in economic health. This can cause a discrepancy between a declared recession and a shrinking economy. The NBER dated the beginning of our most recent recession as December of 2007 even though the U.S. economy actually grew during the first six months after the recession officially began. It was the other indicators that showed a distinct turn for the worse. It was only in July of 2008 that national output began to decline along with the other indicators.
The NBER will be looking at its array of indicators to determine when the U.S. economy began to improve. Based on these data, the NBER will ultimately declare the specific month in which they believed the recession ended and the recovery started. Since the NBER has no predetermined checklist, this declaration will be as much art as it will be science.
It also may take some time for the NBER to make this declaration. The NBER announced in July of 2003 that the recession of 2001 ended December of 2001, a gap of 18 months between the actual end of the recession and the NBER’s announcement. It is entirely possible that the economy is now growing but that the official announcement of the exact month the recession ended may not be made until the end of next year.
One painful irony about the end of a recession is that, even though the economy is getting better, the unemployment rate may continue to get worse. The unemployment rate took about two years after the official end of the recession in 2001 before it finally started to decline steadily.
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