Warren Buffett: 'We’re Still in a Recession', Technical Recoveries Don’t Count

by: Edward Harrison

Warren Buffett wants his street cred back! He’s coming down on the side of most people on main street who believe the recession is still ongoing despite what the NBER stat gurus say. Reuters quotes:

"We’re still in a recession," Buffett told CNBC television in an interview broadcast on Thursday. "We’re not gonna be out of it for a while, but we will get out."

In Buffet’s view, a recession doesn’t end until real per capita GDP returns to pre-recession levels – and that hasn’t happened yet. The phase we’re in now is what I have been calling a technical recovery.

The period just following recession until the previous level of output before recession is re-attained is what I will term a ‘technical recovery.’ This is a time during which economic activity is increasing, but the economy is still operating below levels of the recent past. Unemployment will still be rising and many businesses will still be going bankrupt. Because this period will still be very painful for many, it seems perverse to call it a recovery. So, let’s use the term ‘technical recovery’ to describe this phenomenon. That way, we all understand the reality behind the numbers.

-Technical recovery won’t feel like a recovery to most

And if we double dip before we get to the pre-recession level of output – as I believe we may do – then one could legitimately say "we never had a ‘real’ recovery."

One final thought on recoveries. Bob Shiller says:

I use a definition of a double-dip recession that doesn’t emphasize the short term. Instead, I see it as beginning with a recession in which unemployment rises to a high level and then falls at a disappointingly slow rate. Before employment returns to normal, there is a second recession. As long as economic recovery isn’t complete, that’s a double-dip recession, even if there are years between the declines.

I’m on board with that. I see the Great Depression as a massive dip, a 3-year technical recovery and a resumption of recession.

For you numbers jockeys, here’s what the stats look like:

Before the Great Depression in 1929, the U.S. had nominal GDP of $103.6 billion. By 1933, this had dropped to $56.4 billion due to deflation and a decrease in production. Over the next four year, GDP growth soared. It was 17.0% in 1934,11.1% in 1935, 14.3% in 1936 and 9.7% in 1937. That’s some serious growth, right? Well, GDP was only $91.9 billion in 1937, a full 11.3% lower than it had been 8 years earlier. In fact, it wasn’t until 1941 that we attained the nominal production output of 1929.

What this should illustrate is that working from a lower base makes an increase in GDP comparatively easier than when working from a higher base. Yes, it was a powerful recovery, but it did not get the United States back to the same productive level for many years. In that sense, recovery does not mean recovery immediately.

Does that mean we’re still in recession?