The Business Cycle Dating Committee of the NBER held a conference call on Sunday to call an end to the recession and back-date that optimistic event for the economy to June 2009. The NBER committee determined that a trough in business activity occurred in the U.S. economy in June 2009, ending the recession that began in December 2007, and signaling the start of economic expansion.
The NBER call of a recession that ended more than one year ago would still leave the 18-month recession as the longest of any recession since World War II. The previous record was 16 months of recession.
Of course, given the uneven performance of the market in 2010 and the continuing record level of unemployment in the U.S., critics immediately attacked the NBER data-crunching as the typical ivory-towered "out of touch with economic reality" stance.
It certainly seemed in Monday trading as if bullishness was reigning, with all the major market indexes up more than 1% in the morning.
In its typically obtuse economist language, NBER noted in calling a June 2009 end to the recession that in "determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month."
NBER economists say that real GDP, real income, employment, industrial production, and wholesale-retail sales data indicate the start of the rising phase of the business cycle after June 2009. To support their claim that the recession ended over a year ago, while for many Americans there has been little indication of a recession lessening, NBER notes "economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion."
In fact, NBER says any future downturn would be a new recession.
This view of a new recession may be where politics also come into play. One among the handful of economists on the NBER committee is Martin Feldstein of Harvard University. Feldstein was not only discussing the June 2009 recession end with his fellow NBER economists on Sunday, but telling the press that if the Bush-era tax cuts are not extended, President Obama's policy may cause a new recession.
Feldstein told Bloomberg Radio concurrent with the release of the NBER's death certificate for the recession that raising the taxes on the wealthiest Americans could push the nation back into a recession and urged that all Bush-era tax cuts be extended for two years. President Obama's policy "is going to slow the economy down and could push the economy into recession again next year," the Harvard economist told Bloomberg Radio.
NBER research indicates that real GDP reached its low point in the second quarter of 2009, while the value of real GDI was essentially identical in the second and third quarters of 2009. The average of real GDP and real GDI reached its low point in the second quarter of 2009. The committee concluded that strong growth in both real GDP and real GDI in the fourth quarter of 2009 ruled out the possibility that the trough occurred later than the third quarter.
In less obtuse language last week, Warren Buffett stated in unequivocal terms that there will be no double dip recession.
Buffett's bullish call on the U.S. economy doesn't rule out the NBER hedging of bets, indicating that there could be another downturn in the economy, but it would be a new recession.
--Written by Eric Rosenbaum from New York.