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NBER Declares Recession Over… Yawn at Trader’s Narrative




NBER Declares Recession Over… Yawn


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Earlier this week the NBER, as official guardians of recession labels, declared the most recent economic weakness over. That means the recession that started on December 2007 ended June 2009. The 15 months that it took for the NBER to come to that conclusion may seem rather lengthy but it is about the average time it takes them. More importantly, this was the second lengthiest recession since the Great Depression and tied for fifth lengthiest since 1900:

length of US recessions chartoftheday Sep 2010
Source: Chart of the Day

But does anyone really care? Those that are still unemployed, underemployed or have given up looking for a job have little to celebrate. And to those who watch econometric news this was not really news. Take, for example, the fact that many economists within the Fed and ordinary market watchers have been drawing their recession bars in charts to last summer.

We discussed the question of a ‘double dip’ scenario at length over the summer. One of the charts that I showed was the Anxious Index, most recently last month. Sharp eyed readers would have noticed that the most recent grey bar denoting the recession had stopped mid-2009. Here’s another comment from a few months back: No Double Dip, Economy Improving.

Notable bears such as Gluskin Sheff’s David Rosenberg have commented that the declaration of the end of the recession is a contrarian sell signal as the good news is already baked in stock prices. Mark Hulbert tested that assertion by looking at performance of the Dow Jones in such instances. Out of the 15 cases, the Dow was higher 60% of the time. This is very close to the average performance of the Dow generally speaking (positive 67% of the years). So NBER’s statement that the recession has ended doesn’t really provide an edge for stocks one way or another.

Jason Goepfert did a similar study and came to more or less the same conclusion. Stocks tend to do slightly better between the end of the recession and when the NBER comes out to say it has ended. But there isn’t really a significant edge there. More interestingly, Jason points out that the best performing asset class after a declaration of recession’s end by the NBER is commodities.

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