News reports have been filled recently with articles about whether the severe recession is ending and citing the National Bureau of Economic Research (NBER), a non-profit. "Recession may not be over yet, panel says," warns the Los Angeles Times. The article states, "The panel of economists that dates turning points in the economy is saying what many Americans have been feeling: This recession may not be over yet. That was essentially the message from a brief statement released Monday by the National Bureau of Economic Research, the nonprofit group that officially certifies the start and end of U.S. business cycles."

The article goes on to detail why NBER hasn't declared the recession over: "One big factor in its decision to hold off on declaring the recession's end may have been the near-double-digit unemployment rate that still plagues the economy. The weak labor market has prompted many American workers to ask, "What recovery?"

At the end of article, there's more negative commentary about jobs: "In March, employers added 162,000 jobs, but 48,000 were temporary ones created by the Census Bureau. The jobless rate has been stuck at 9.7% for the last three months."

New York based Democrat and Chronicle had a similar article entitled, "NBER says Great Recession isn't officially over."

"Like that old college roommate who came for a visit and is still crashing on your couch, the Great Recession refuses to go away. The historic crisis - which has cost New York state 322,000 private-sector jobs - officially started in December 2007. Its official end? Don't hold your breath," the publication stated quite pessimistically.

Finally, we have a syndicated column from UPI which states, "Committee members were concerned that a stall or reversal of recent improvements could force them to declare a second recession has begun if they prematurely declare the first one has ended."

Waiting for the End of the Recession

This media coverage is off base and frankly wrong. The unemployment rate is a lagging indicator coming out of a recession (see graph below - recession periods are shaded). That said, the LA Times is wrong to trivialize the 162,000 jobs that were added in March and they neglected to point out that revisions to January and February payroll data show that 62,000 more jobs were added in those months. That article also negatively states that the unemployment rate "...has been stuck at 9.7% for the last three months." This is an unfair statement which omits the fact that the unemployment rate peaked at 10.1% in October, 2009, declined to 10% in November and December, 2009 and then dropped to 9.7%.





None of these media articles examined NBER's track record with calling the end (or beginnings of recessions) and that examination is quite illuminating. It took NBER until November, 2001 to declare that the prior recession had begun in March, 2001 for an eight month time lag. NBER didn't declare that recession, which ended in November, 2001 over until July, 2003 - a whopping 18 months after the fact. My examination of NBER's past recession ending calls shows that it typically comes more than a full year after the recession actually ends and averages around 16 months.

Most economic data suggest that the late 2000s recession likely ended around July, 2009 which means that it won't be until late in 2010 that NBER possibly declares the recession over. Why does this matter? Well, some who fear a lingering recession, for example, have remained out of the stock market until it's clearer that there are plenty of clear skies ahead. Meanwhile, global stocks have rocketed about 80 percent higher since year ago lows. As I said many times, smart stock market investors are looking ahead.

For sure, some Americans, especially those who are still unemployed, aren't enjoying any economic recovery. The same holds true for some folks who still have jobs but had their pay cut or who lost their homes to foreclosure or declared personal bankruptcy due to excessive personal debts.  But, most folks are employed and earning a reasonable paycheck and have money invested in stocks which have rebounded nicely.  

Dissenting Opinion

While most media ignored it, the New York Times actually highlighted the fact that one of the NBER committee members disagreed with his peers about not declaring the recession over and went public with his opinion. In an article entitled, "U.S. Economist Dissents, Saying Recession Is Over," the Times states, "In a rare public dissent, a member of the committee that officially dates the turning points in the nation's business cycles said on Monday that he thought that the recession ended last June and that the panel should have said so."

The article then goes on to quote Robert J. Gordon (photo below), a Northwestern University economist as saying, "I strongly disagree with the committee's decision...It is obvious that the recession is over...The committee thought that, even if that probability was extremely small, it would be very costly to the committee to be proved wrong after the fact," if it prematurely declared the recession over.

Recession Probabilities

Speaking of probabilities, it is interesting to note that graphs on the St. Louis Federal Reserve website are now shaded to show their estimate that the recession ended in July, 2009. They came up with that date using a statistical model for dating business cycle turning points developed by Marcelle Chauvet and Jeremy Piger.

The model currently is saying that the chances of a recession now are extremely low - actually the probability model says it is just 2.8 percent currently (the converse of which is that it is stating that there's a 97+ percent chance we're enjoying a recovery). Not bad odds, wouldn't you say? Just don't expect that to see those numbers in any headlines any time soon.

Copyright Eric Tyson, 2008 - 2010 all rights reserved.

Eric Tyson is the only best-selling personal finance author who has an extensive background as an hourly-based financial advisor and who does not accept speaking fees, endorsement deals or fees of any type from companies in the financial services industry or product or service providers recommended in his articles, books and his publications.