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It is taboo to even talk about the end of this economic misery that the US has been mired in. So thick is the negative sentiment that if anyone dare suggest a glimmer of hope, they are often ostracized and called all sorts of names. Back in June I asked: Could the Recession Be Over?
Now it seems that was prescient. If we follow the script that the National Bureau of Economic Research follows in order to determine whether we are out of the recession, we find there is ample evidence that it did. The NBER looks at a wide spectrum of economic variables to distinguish periods of economic contraction and growth. According to their own statements, prime among these are: GDP, industrial production, real manufacturing and trade sales, real personal income (less transfer payments), and nonfarm payrolls. The following charts show these variables (courtesy of Hussman Funds’ recent analysis):
Assuming the recession ended June 2009, industrial production has been rising for 5 consecutive months with a trajectory closely following previous recoveries.
Manufacturing also seems to have bottomed in June 2009 but rather than rising in keeping with previous recoveries, it has been range bound.
Similar to Manufacturing, Personal Income also stopped falling in June 2009 but it has not been able to rise significantly.
Not surprisingly, unemployment remains as the fly in the ointment. The recent nonfarm payroll data wasn’t good news, unless the silver lining of no interest rate increases is “good news”.
As we last discussed this over a few more dire charts, this is the single component that has the potential to drag the recession on and perhaps even deepen it. That is, unless it miraculously starts to cooperate and improve along with the rest of the elements in the economy.
But as Hussman points out, the NBER may still declare the recession over even without this piece falling into place. This is what happened in 2001 as that year’s recession saw unemployment drag on for much longer than normal - continuing to fall even 2 years after NBER officially demarcated the end of the recession.
Finally, here’s another chart from Grant’s Interest Rate Observer. It shows that the harder GDP falls, the faster it bounces back. At least, that’s what we’ve seen in recent history:
Usually NBER declares the start and end of recessions with considerable time lag. And even if NBER does officially denote the end of this recession, it won’t mean much to those still struggling to find a job, build a business and improve their lot. The economic crisis has left an indelible mark on the average person. As we’ve discussed repeatedly, people are distrustful and eschewing risk, seek instead a safe haven. Much like their grandparents who survived the Great Depression, this “recession generation“, will be marked by frugality.
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