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December 2008. There seems to be plenty of economists willing to state the recession ended in June/July of 2009, but still no announcement from the NBER. This is not an ominous sign for continued economic turmoil by itself. The NBER announcement typically lags the actual event by around a year. The end of the 2001 recession was not declared until more than a year and a half

The NBER examines different economy-wide measures of economic activity to determine turning points in the business cycle. According to their paper [1] declaring the trough (and hence beginning of economic expansion) of the 2001 recession:

“In determining whether a recession has occurred and in identifying the approximate dates of the peak and the trough, the committee therefore places considerable weight on the estimates of real GDP issued by the Bureau of Economic Analysis of the US Department of Commerce. The traditional role of the committee is to maintain a monthly chronology, however, and the BEA’s real GDP estimates are only available quarterly. For this reason the committee refers to a variety of monthly indicators choose the exact months of peaks and troughs.It places particular emphasis on two monthly measures of activity across the entire economy: (1) personal income less transfer payments, in real terms and (2) employment. “

According to a paper released this August by the Richmond Federal Reserve[2], one of the reasons the NBER was slower to declare an end for the 2001 downturn was the poor performance of employment in that recovery. The paper also suggests that the committee “waited until many broad indicators had surpassed their pre-recession peaks, which has not happened in this recession for any of the series examined here.”

Pay attention to that last sentence, because it matters.

summitVIEW

A Double-­Dip Recession in the United States?With each passing week of August, there are more headlines stacking up that indicate the US Economic Recovery isn’t quite as rosy as was being projected just a few short months ago. Rising jobless claims, awful housing numbers, and slowing Leading Economic Indicator Indices have all been part of the picture. With these disappointing economic prints comes a growing chorus of voices in the Mainstream Media questioning whether the US is headed back into recession. It likely is not. What is the bad news answer? It is likely that the US never emerged from

null and void.

The most glaring evidence supporting this depressing claim is the fact that the National Bureau

really matters is “conditions on the ground,” there

yet to be declared.

is that the NBER is just slow. It did not declare the December 2007 start of the recent recession until

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in February, 2008 at 9,736.0, fell to a cycle low of 9,091.2 in October, 2009 and was at 9,217.8 in the most recent report of June, 2010.[4] This is more than 5% off the high, and not showing any meaningful sign of growth, although the near term

are similarly uninspiring. The unemployment rate in December 2007 as the economy headed into the downturn was 5.0% (after creeping up from an average closer to 4.6% for the year). As of July 2010, it stood at 9.5% after reaching a high of 10.1% in October 2008.[5] Unemployment may be one of the more troubling statistics the NBER will confront when examining the current economic climate. While it has leveled off, it certainly hasn’t shown any sign of improving, and with no job growth, there really can’t be any meaningful growth in personal income. Following the trend of a “jobless recovery” that was set by the 2001 recession, the awful unemployment numbers will likely persist for a long time. There is talk of a structural shift in the US economy in which high unemployment becomes normal.

So, with all three top measures of economic health used by the NBER below their peaks of 2007, will

It is worth examining some of the same data series the NBER uses to get a clearer picture of when they might declare an end to the recession, and what date that declaration will pinpoint. GDP is cited as the most important factor in the NBER methodology, so it is a good place to start. The BEA has been reporting positive annualized growth rates in GDP each quarter since Q3 2009. The problem is, the growth hasn’t been big enough to bring the US economy back up to the same size it was when the recession hit. Examining the dollar level of GDP, the US Economy topped out at 13,363.5 billion in Q4 2007, and declined to a low of 12,810.0 billion in Q2 2009, when the steady, positive

back to 13,216.5 billion for Q2 2010, which is still below the peak. [3]

is scheduled to be released on August 27th, and most expectations are for a further downward

in the recent volatile trading days. (Update: 2nd Quarter 2010 growth revised from 2.4% down to 1.6%).

What story do the Personal Income statistics tell? Judging from straight personal income, the USA is back on track to prosperity, with the highest personal income reported to date in the 2nd quarter 2010 report. However, the relevant statistic to the NBER committee is Personal Income LESS Transfer Payments. Transfer payments are things like social security

hands without a reciprocal exchange of goods and services. This monthly measure peaked

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Disclaimer: All material presented herein is believed to be reliable but we cannot attest to its accuracy. Neither the information nor any opinion expressed constitutes a solicitation by us for the purchase or sale of any securities.

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there be any forthcoming announcement from the committee? If the committee holds off on

any announcements until these measure improve to pre-recession levels, it is highly unlikely we will see any proclamation from them this year, and maybe not even next year. This is not even accounting for other measures typically taken as indicators for the broader economy: Consumer Sentiment Survey, ISM Manufacturer’s Index, Small Business Optimism Survey, etc. A hint: none of them look very rosy right now, not compared to pre-recession levels, and certainly not compared to other periods of economic recovery.

So what? Who really cares what the NBER committee says if all they do is apply labels to what actually happens in the economy? It is more important for individuals to understand the basics of what is happening and make investment decisions accordingly. Instead of breathlessly speculating on the eventual announcement, it is useful to understand that the economy certainly does not appear to be in a stable recovery, and is likely to face further

(and thus all important Consumer Consumption) and GDP are all sluggish.

With so many areas of the economy never really

Housing), and the rest of the economy limping along with massive government stimulus and inventory restocking, it would be more accurate to view the downturn as one, drawn out recession. Even the NBER itself does not believe in the concept of the double dip. It will either classify as two discrete recessions, or one long recession. Given the tepid recovery and persistent weakness in key economic sectors, one long recession seems much more accurate.

Quotes:

Billions spent on housing tax breaks accomplish little, experts say

The U.S. government spent $230 billion last year to support home ownership but accomplished almost nothing beyond putting money into the pocket of the rich, experts told a conference on housing policy. The rate of home ownership in the U.S. is about the same as in Canada and less than that of Australia, Britain, Ireland and Spain, which all offer little in the way of home ownership tax breaks. The Urban Institute said tax incentives for U.S. mortgage holders are worth $5,459 a year to people making more than $250,000 but only $91 a year to those earning less than $40,000.

USA TODAY (18 Aug.)

Bankruptcies in the U.S. reach the highest level since 2005

increased to their highest level since the last quarter of 2005. Business and personal bankruptcies spiked then because a law revision that tightens the procedure was about to come

the looser process, according to The Economist.

ended June 30 compared with the same period a year earlier.

The Economist (18 Aug.)

A Broken RecordThis is going to sound like a broken record but it took a decade of parabolic credit growth to get the U.S. economy into this deleveraging

towards bringing household debt into historical realignment with the level of assets and income to support the prevailing level of liabilities. We are talking about $6 trillion of excess debt that has to be extinguished, either by paying it down or by walking away from it (or having it socialized).

David Rosenberg, Gluskin She! & Associates, Inc., August 26, 2010

[1] http://www.nber.org/cycles/july2003/recessions.pdf

[2] http://www.richmondfed.org/publications/research/economic_brief/2010/pdf/eb_10-08.pdf

[3] Figures are in Chained 2005 dollars, and are from the Bureau of Economic Analysis website: http://www.bea.gov/

[4] Figures are in Chained 2005 dollars,and are from the St. Louis Federal Reserve website: http://research.stlouisfed.org/fred2/categories/110

[5] From the St. Louis Fed: http://research.stlouisfed.org/fred2/data/UNRATE.txt