This Recession Should End in June

Most sensible economists agree the U.S. economy is in recession. Yet the fact remains that no recession has been officially declared.

The textbook definition of recession is two successive quarters of contraction. After posting very strong growth during the second and third quarters of 2007, GDP fell 0.2% during the fourth quarter of that year. However, it rebounded to 0.9% growth in the first quarter of 2008. The tax rebate checks, billed as an economic stimulus plan, boosted second quarter 2008 GDP to 2.8%. GDP fell 0.3% in the third quarter. So if the economy contracts during the fourth quarter, which it certainly will, we will have satisfied the textbook definition of recession.

The more relevant definition, however, is the one stated by the National Bureau of Economic Research. This is the entity that has the authority to declare official recessions in the U.S. According to the NBER, "a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." By this definition, it appears that a case could be made that we have been in recession for almost a year.

The NBER takes its time in declaring recessions. According to the NBER, the last recession began in March 2001 and ended in November of that year. But the NBER did not declare the start of the recession until November, when the recession was already over. Furthermore, it did not declare the end of the recession until July 2003. That's almost two years after the recession had already ended.

Employment is one of the many factors the NBER studies when trying to determine if the economy is in recession. In December 2006, the unemployment rate stood at 4.6%. One year later, it had climbed to 5.0%. After dipping a bit in January and February of 2008, it resumed its upward drift. The unemployment rate for October hit 6.5%, 150 basis points higher than it was just 10 months earlier. The last time the unemployment rate visited this level was in April 1994.

Given layoffs like the one announced Monday by Citigroup, there is no doubt unemployment will jump to much higher levels. Some economists hope the unemployment rate will peak around 7%. I think this forecast is much too optimistic. In June 1992, the unemployment rate hit 7.8%. In November and December of 1982 it peaked at 10.8%. Furthermore, it is not unusual for the unemployment rate to continue rising for some time even after a recession has ended. This is because employers are wary about hiring until they are convinced that better times lie ahead. At this time, I am expecting the unemployment rate to rise to somewhere between 8-9% by June 2009.

I believe the current (undeclared) recession began in January 2008. I am optimistic that it will end around June 2009. If I have the starting and ending points right, this recession will have lasted 18 months in duration. That is about the average length of all recessions recorded in the U.S. since 1854, but it is 10 months longer than the average since 1945. In fact, 18 months would set a post-WWII recession record.

Of course, if businesses become more aggressive with layoffs, retail sales continue to fall, and housing prices fail to stabilize by next spring, this recession could last considerably longer than 18 months. That would be a dire outcome indeed.

Comments

[Steven Hansen:]

"Most sensible economists agree the U.S. economy is in recession."

"I believe the current (undeclared) recession began in January 2008. I am optimistic that it will end around June 2009. "

wow - illogical. there was not one "sensible" economist that claimed we were in a recession even in June 2008. do i need to list them? they include Philadelphia Fed's economic forecasters, National Association for Business Economics, the President's Council of Economic Advisors, and the Fed.

How can a economist issue a forecast in June saying we are not in a recession at that time, and in November say "oh, i think we were in a recession in January."

well, i believe the recession began sometime between june and august - and with all the current economic uncertainties i will not be predicting the length or the depth of this crisis.

2008 Nov 19 03:16 AM

[peterthepai...:]

the two quarters thing is irrelevent...this is a recession...date it from when jobs started to disappear...it will not end until house prices bottom...
debt must be paid down or bankruptcies declared...oh...and financials stop lying about their balance sheets...

workin stiffs will be ...can't spend, won't spend

2008 Nov 19 07:48 AM

[vbierschwale:]

Look folks, the economists have been wrong on every estimate that they have made in the last 90 days and probably longer.

The reason they are wrong is the same reason Greenspan was wrong when he stated that he had never calculated on home values going down because they never have.

At least he was a man and admitted that he made a mistake.

The reason our economists are wrong is because they are talking traditional textbook models.

The problem this time around is there is a fly in the ointment and that fly is the American Consumer, who accounts for 70% of all purchases in America is either out of work, or worried that they will soon be out of work because their job has been offshored.

This offshoring of their jobs as described in an artilce titled "Global Economy" on my website at www.KeepAmericaAtWork.... and "Your wages do matter" is creating the financial SYMPTOMS known as the sub prime mortgage and the bailout of banks and now possibly auto manufacturers and it won't be too long before you will have the majority of retailers, manufacturers and raw material producers standing in line with their hat in hand to ask the american consumer who they have put out of work for a bailout.

My first instinct would be to tell them to go fly a kite, but logic tells me that we need the American consumer firing on all 8 cylinders and that means we need:
1. The American Consumer working
2. Retailers to sale the goods
3. Manufacturers to make the goods
4. Raw material producers to supply the ingredients.

Help me to get this message out by giving me the names of the CEO's and companies that are responsible for putting the American Consumer out of work so that I can add them to my "Wall of Shame" so that each of the 4 groups above will know who is directly responsible for the crisis they are currently facing.

Virgil
www.KeepAmericaAtWork....

2008 Nov 19 07:56 AM

[Asbytec:]

What moxy. The depth of this thing is immense, and to predict a recovery by June? No way, my man.

The credit markets are tight, the money supply is still winding down, hedge funds aren't nearly done, US automakers are just now realizing trouble, trade is still falling off, the G20 can't agree on anything, the Government is lame duck until January, and Hank Paulson has control of $700Bn.

Most nations that will enter recession haven't, yet. Think the credit markets will be up and running by next quarter, do you? Man, I am not nearly that optimistic. Apparently, neither are the markets. The dollar will climb until June, at least, I am sure, but a recovery...just don't see it.

Bernie has been the only dog in this fight until the stimulus package. The congress and EU were late in joining the fight. And they only just did anything. Now, there is talk of another economic stimulus package?

We got a way to go before we bottom out. I don't care when you define the recession started, it won't be over by June 09. Oh, and don't hold it against Obama. I am sure he'll do his best.

but, if it is over by June, can we get our bail out money back?

2008 Nov 19 08:40 AM

[wpdragon:]

""but, if it is over by June, can we get our bail out money back?""

Ha, we'll never see that money again, regardless... just hope the Republicans in Congress don't ask for our stimulus checks back.

If I had a dollar for every economist, market analyst, broker, pundit, talking head on CNBC who said last winter/spring that we WEREN'T in a recession, accused we the people of being too pessimistic and that if there were one we were causing it by our pessimism, and that the economy would be revving back up with strong GDP growth in Q3 and Q4, I'd be on an island in the Caribbean right now.

Fact is, everyone on the planet missed this one. And no one appears to have any idea how to stop it.

2008 Nov 19 10:07 AM

[User 253060:]

Nouriel Roubini didn't miss it... Read what he has to say, and realize we are all in for a world of hurt.

2008 Nov 19 10:33 AM

[axelrod608:]

It seriously annoys me when anyone wishing to be taken seriously uses "statistics" that are clearly nonsensical. Comparing current government unemployment rates to historical gov't rates is ridiculous. As currently massaged, revised, and altered, current unemployment rates are a joke, a very bad joke. Shadowstats was estimating unemployment at around 15% last time I checked.

We are adding an average of 250,000 a month to the ranks of the unemployed. Available jobs are few and far between. Look for 3,000,000 more unemployed next year this time. That is assuming the US auto industry keeps operating as currently.

You have to be seriously reality challenged to believe that with current conditions and forseeable probabilities, to conclude that this downturn will slow, let alone reverse direction anytime soon. I will be shocked if we see a turnaround before 2010 or 2011.

The economy we brought into the 21st century is unsustainable. It cannot be "reflated". And, like the attempt to teach a pig to fly, it will have similar results.

2008 Nov 19 10:44 AM

[The_Value_I...:]

I think everyone is missing a key point here. Because of self-fulfilling prophecies the Fed, Govt, NBER et al. are not able to state "We might be in a recession" if they are not 100% sure! This would completely spook the public and with a 100% chance lead to a prolonged recession. The bottom line is that all of the aforementioned groups are a great place to gather information, do your own analysis and postulate your own opinions. Personally, my guess is that the recession started in December of 2007, housing will bottom and experience a U rebound sometime in late 2009. If we are lucky we will see growth in 2H 2009.

2008 Nov 19 11:23 AM

[henarl:]

Wow, I think I can make it until June 2009 and I'm really relieved that everything will be great after that magic date. Now I will be able to go out and buy all of the toys and goodies that I was afraid I'd never see again.
Thanks.

2008 Nov 19 04:41 PM

[NOWHEREMAN:]

one new 10 million person city created in China in the last 3 months, 100,000 new businesses. China signs free trade pact with Peru.

Read all about it. People's daily

2008 Nov 19 05:57 PM

[jepittman:]

Whew! The sentiment in these responses is amazing. NOBODY thinks this guy is even sane. Its gotta mean something.

2008 Nov 19 06:22 PM

[mrresponsible:]

I agree with Vahan.

General Background Statements:

Looking in the real view mirror doesn't necessarily predict the future.
The stock market is not the economy.
Most cycle studies usually go back only to the early 1900's
but I have seen studies back to the 1700's.
Most statistics stated below go back to 1854
Most stock market cycles in recent years have been less than 4 years.
Averages are not particularily good at predicting cycles.
The stock market reaches bottom prior to the really bad news.
It is likely we are in a primary bear market that started in 2000 and could last a long time.
Some are saying this is the "lost decade" but we will have bear market rallies.
Perspective: U.S. markets are not all back to 2002 low levels yet - despite all the media bad news

Useful Statistics?

Stock Market Declines
The U.S. stock market peak in this cycle could be defined as October 2007
On average, the U.S. stock market peak to trough is 22 months in length.
U.S. stock market bottoming process: has been 3-8 months in length since 1970.
The total time spent in bear markets has been 31% of the last 107 years.
Since 1953 the S&P stock market index bottomed 4.1 months prior to recession trough.

Recessions
It is likely the U.S. Gov't will declare that a recession began in April/May 2008.
Historically, the length of recessions have been:
17 months in length since 1854
14.4 months since 1902 - Average stock market decline -24.2%
22 months since 1929
10.2 months since 1945 - Average stock market decline 34%
During a couple of bear stock markets, no recessions were ever declared - not likely now.

Stock Market Recoveries
Stocks and sectors provide some leadership- solid sales and earning growth and the stocks are traded well
U.S. stock Bull markets (from trough/bottom to stock market peak) have averaged 30 months in length since 1900/
There have been three long bull markets that lasted 9 years, 10 years, and 15 years 8 months
An average gain of 106% for all bull cycles
An average gain of 46% after one year from the recession trough.

Sequential Characteristics of Declines, Bottoms, and Recoveries

Concern - Decline of market over long period of time
Fear - Rapid acceleration in the speed of the market fall
Panic - Massive increases in volume and volatility - like convulsive seizures
when 14 of the 64 days where intraday volatility is 8%+ ... going back to 1928.
So out of 80 years, over 20% of the most volatile days have come in the past 6 weeks.
Shake-out - speculators - everyone gives up - no one is saying it is a great time to buy
Capitulation - You won't know it when you see it.
The idea of capitulation could be costly as investors wait for a bus that never arrives -
best if you are a long term investor 5-10 years
Geniuses are gone
Oversold conditions - maybe now?
Cheap is a Price/Earning ratio of 8 (problem 'E' is dropping) with a Price/Book ratio of less than 1.2 (currently 1.5 S&P)
Trust Building/Hope
Stock market volumes are low after a bottom.
Recovery
Average 1 year return after trough/bottom = 46%

2008 Nov 20 03:58 AM