Recession not officially over until the NBER sings, but it's time to move on

As the recovery commences, where do we go from here? Leading economist Diane Swonk says we need to concentrate on exports.
Written by Joe McKendrick, Contributing Writer

Is it really over?  Can we come out of the storm shelters now? The economic hurricane likely ended back in July 2009, but the National Bureau of Economic Research -- which weighs its numbers carefully -- is not ready to call an "official" end date to the recession yet.

In a recent post, Diane Swonk, chief economist at Mesirow Financial, said that her data shows things began to pick up from the recent funk around mid-summer last year. The NBER, however, is very careful and conservative about making its calls for the beginnings and end of economic downturns. NBER, a committee of leading economists, is considered the final arbiter of when we hit the economic skids, and when we start to improve.

Sure enough. You may recall that the NBER did not call the beginning of the recent downturn, December 2007, until a year later. The end of the previous recession, November 2001, was not called until July 2003.

The NBER measures recessions by peaks to troughs in economic cycles. Usually, then, a "recession" is considered to have begun right after economic activity has hit a peak and is in its first month of a downward slide. A "recovery" is considered underway right after the trough is hit.

Needless to say, then, that the first months of a recession are likely to not be noticeable to most businesses. And, conversely, the first months of a recovery are likely to still feel just plain awful.

The above chart shows the Chicago Fed National Activity Index, with the gray bars denoting recessionary periods (December 2007 recession not marked yet.)  You can see where the troughs are.

Employment tends to lag these cycles -- meaning unemployment stays low well into recessionary periods, but rises toward the end -- and stays elevated through the early parts of recoveries. So, in keeping with that pattern, we're likely to see unemployment remain high for a while, even though many sectors of the economy will start booming.

Swonk and other economists seem to concur that we started to climb out of the trough in the summer of 2009. The Conference Board just issued an upbeat-looking Leading Economic Index (LEI) for the U.S., indicating a 1.4 percent increase in March, following a 0.4 percent gain in February, and a 0.6 percent rise in January. The U.S. LEI is now at its highest level. Says Ataman Ozyildirim, economist at The Conference Board: "The U.S. LEI has risen steadily for a year, and its six-month growth rate has remained fairly stable in recent months — led by improvements in financial and labor market indicators. Payroll employment made its first substantial contribution to the coincident economic index, suggesting a recovery that is beginning to gain traction."

So, where do we go from here? Recessions have a way of re-arranging our economy and our perceptions about where growth needs to occur. In this case, we've recognized that our economy has become deeply integrated with the global economy, and economic policy and business decisions need to be oriented toward that thinking. Swonk points out that we need to focus on exporting:

"We can’t constantly look to consumer be a consumer-driven economy — we have to be an investment- and export-driven economy, which is where we’re moving. We have to see consumers around the world step up to buy our goods. The only way you pay back debt is with a little austerity. But if you invest and export, you’re investing in your future — it’s like going on a diet and getting healthy again. Investment produces productivity growth which leads to profits."

Swonk adds that much of the business sector is emerging from the trough with relatively healthy balance sheets -- which will support a wave of new investments in equipment, and hopefully human resources.

This post was originally published on Smartplanet.com

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