It’s Official

by Elaine Schwartz    •    Sep 21, 2010    •    747 Views

We now know when the recession officially ended. But I still wonder whether we are moving along a “V”, a “U”, a “W” or an “L”.

According to the National Bureau of Economic Research (NBER), the recession began during December, 2007 and ended June, 2009. 18 months, this recession was the longest since WW II. The 1973-75 and 1981-82 recessions lasted 16 months with the 1981-82 recession a part of a “W” which we could call a double dip. Lasting 8 months, the 2001 recession was the same length as the 1990-91 contraction.

I thought it would be interesting to see the connection between (selected) recession years and politics. 1920: switch from incumbent Democrats to Republican Warren G. Harding; 1932: Herbert Hoover loses to Franklin Roosevelt; 1948: incumbent Harry Truman wins; 1980: Ronald Reagan beats Jimmy Carter; 1992 (after 1990-’91 recession): Bill Clinton defeats George H. W. Bush. (“It’s the economy, stupid.” was posted in Bill Clinton’s campaign headquarters as a reminder of their winning message.)

The Economic Lesson

The traditional definition of a recession is 2 consecutive quarters of a shrinking GDP. The NBER, though, uses additional variables such as “aggregate hours of work” and other production and employment data to identify the length of a recession. The 2001 recession, for example, did not have 2 consecutive quarterly GDP declines.

The path of a business cycle moves through an expansion, peak, contraction, and trough. As a result, during December, 2007, we experienced the peak of the previous business cycle and the beginning of a contraction. We now know that the trough, the very bottom of the current cycle, took place during June, 2009. Since then, we have been expandng. With a sluggish expansion, I guess we can eliminate the “V”.  

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