The recession is over. The last piece has fallen into place, with the BLS announcement that employment rose in March.
Identifying the beginnings and ends of recessions has been difficult in recent decades because the two most important indicators, output and employment, have sometimes behaved differently from each other. Most notoriously, in the recovery that began in November 2001, employment lagged far behind economic growth. If one had gone by the labor market, one might have called it a three year recession. But if one had gone by GDP, one might have wondered whether there was a recession at all.
This time around, the difficulty is not so great. True, the magnitude of job loss after December 2007 was unparalleled since the 1930s. It was severe even relative to the loss of GDP. And the unemployment rate remains extremely high. But contrary to some impressions, the labor market in this recovery has not lagged unusually far behind the rest of the economy. It always lags behind somewhat: due to costs of search, hiring and training, firms wait until the recovery is reasonably well established before adding workers to the payroll. But by either of two criteria, the lag has not been unusually long this time. First, the three months of greatest job loss virtually coincided with the three months of greatest output loss, in the first quarter of 2009, as was also the case in the 1991 and 2001 recessions. (See graphs below.) By July 2009, job market indicators were showing their first tentative signs of life. Second, with the latest figures, employment changes have now turned positive. 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).
Another economic indicator is particularly helpful in making sense of these cycles: real income. In theory, income should be the same as GDP. (The value of all goods and services sold is equal to the value of all income received in their sale.) In practice, surprisingly large statistical errors create a gap. Statistical experts say that the production side (GDP) is not necessarily more accurate than the income side. National income is shown as a dotted line in the bottom graph. In the last three cycles, including 2001, the income measure has behaved a little more consistently than the GDP measure: plunging along with employment as the recession begins. Subsequent revisions in the GDP statistics have moved a bit in the direction of the initial numbers for national income, employment and the other indicators, rather than the other way around.
Click here for enlargement of monthly graph (2000-2010).
The source for monthly GDP is the estimates by Macroeconomic Advisers, LLC.
(Three-month moving average is centered: The last observation, at Feb. 2010, averages Jan-March.)
Click here for enlargement of quarterly graph (1990-2010).
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