Market Talk

We say this is still a recession

Yesterday’s statement from the NBER Business Cycle Dating Committee seemed a bit odd.

The committee usually releases a statement when it has something substantial to say about the economy. But saying it was maintaining the status quo on its recession call and holding off on declaring the downturn over seemed strange.

But Jeff Frankel, Harvard economist and a committee member, sheds some light on the reasoning behind the statement.

“The press was bound to find out that there had been an in-person meeting (as it did), and so the confusion created by issuing the statement was probably less than the confusion that would have been created by remaining mysteriously silent,” Frankel writes on his blog.

So there you have it. The committee thought ahead about the repercussions of its meeting getting leaked and appeared to act in a transparent manner.

That hasn’t stopped Frankel, himself, as well as Robert Gordon of Northwestern University from stepping forward and claiming the recession is already over.

But what seems to be getting lost in translation is this debate doesn’t really impact investors. Sure, officially calling the recession’s end sounds good from a psychological standpoint, but it’s not likely to impact policy decisions.

“The NBER is attempting to identify peaks and troughs in the economic cycle for research purposes,” Jeffrey Miller, CEO of NewArc Investments, writes at A Dash of Insight. “The NBER has a research mission, not a policy mission.”

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It only took one month of job growth to change public perception about the labor markets and overall economy.

First, Harvard economist Jeff Frankel earlier this week proudly announced the recession’s over. Now, University of Oregon economics professor Mark Thoma reluctantly says he’s giving up on pushing policymakers to pass more aggressive fiscal policy to help labor markets. From Thoma:

I’ve been pushing hard for more help for labor markets for quite awhile — at times I’ve thought it was a bit repetitive, but necessary — but it’s probably time for me to give up and accept that we are going to have a slower recovery than we could have had with more aggressive fiscal policy. Unless there is a dramatic reversal of recent indications that we are at the beginning of a recovery, Congress is not going to provide anything more than token help from here forward.

He believes more stimulus funds devoted to creating jobs could help the economy return to full employment sooner rather than later. But with the economy already growing jobs, it looks like Congress may have missed its chance at passing additional fiscal policy.

“I’ll still complain – there’s no reason to let policymakers off the hook – but it’s time to give up the hope that anything more will be done to help the unemployed find jobs,” he says.

UC Berkeley economist Brad DeLong follows up on Thoma’s post and notes his frustration with Congress’ inability to pass a jobs-creation bill. From DeLong:

He is, of course, right. There is right now a stunning disconnect between an Obama administration that says that unemployment is and will for a long time remain unacceptably high and an Obama administration that is not pushing for policies to boost jobs on the scale needed in a continent-spanning economy.

It’s unfortunate that all of this comes after just one month of job growth. As Paul pointed out yesterday, it’s hard to get too excited about 162,000 additional jobs, especially considering its a drop in a bucket compared to the overall work force of 134 million.

With the unemployment rate perched at 9.7%, the broader underemployment rate at 16.9% and the long-term unemployed making up 44% of all the unemployed, this jobs recovery is destined to be sluggish, at best. And without any sort of jobs bills in the offing, expect years to pass before we get anywhere close to full employment.

Oy.

The recession's over!

“The recession is over.”

Strong words from Jeff Frankel, Harvard economist and member of NBER’s Business Cycle Dating Committee. His opinion is based off the March jobs report, which showed the economy added 162,000 jobs. Job market indicators were showing signs of life last July before turning positive last month. From Frankel:

This is the more definitive criterion, because a recovery is defined as a period of increasing economic activity. The nine month wait was painful. But the lag between positive income growth (June 2009) and positive job growth (March 2010) turned out to be shorter than in the preceding two recessions (one to two years).

Interesting comments from Frankel, especially considering his stature on the dating committee. He fails to give an exact time for when the recession officially ended, which is important because many pundits have differed on the recession’s ending, with dates ranging from last summer to last month.

Some skeptics aren’t so certain about Frankel’s declaration.

“I’m waiting for more than one month of somewhat encouraging employment data before coming to that conclusion,” writes University of Oregon economics professor Mark Thoma. “It’s always possible that one month is a blip, not a trend.”

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Harvard economist Jeff Frankel posts an interesting graphic detailing the economy’s roller coaster ride since peaking in Dec 2007.

Index of Leading Economic Indicators leads the train, as it rose for a seventh consecutive month in October, followed by consumer confidence, which has hit some bumps throughout the ride, but still remains substantially higher than it was in February, Frankel says.

“The important middle cars, which represent measures of aggregate output, probably reached bottom in the early summer, and then started back up,” he adds.

To be sure, the unemployment measures lag the rest of the train, as they typically do.

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The problem is, you're losing half a million jobs a month.

Accelerating job losses last month have offered investors another harsh dose of reality.

The jobs data in recent months haven’t exactly been cheery – losing anywhere from 300,000 to 600,000 jobs a month can’t be viewed as good for the economy. But the data throughout the last few months had exceeded economists expectations, prompting optimism that the labor market was on a road to recovery.

Nevertheless, June nonfarm payrolls falling 467,000 – much worse than the 350,000 economists expected – and the unemployment rate ticking up to 9.5% has changed that hypothesis, at least temporarily.

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Cross at the green, not in between.

Just because much of the economic data throughout the last three months have been characterized as “better than expected” doesn’t mean the economy’s improving.

For instance, take the May employment report. The fact that 345,000 jobs were lost last month was certainly better than economists expected. But make no mistake; an economy that’s losing 345,000 jobs a month is an economy that’s still in decline.

Despite the better-than-expected headline jobs number, Harvard economist Jeff Frankel, who sits on NBER’s recession-dating committee, says the labor market still hasn’t signaled a turning point.

“Speaking entirely for myself, I like to look at the rate of change of total hours worked in the economy,” he says, noting the length of the work week usually responds at turning points for the economy faster than the actual headline jobs number.

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