How do we know the recession is over?

Signs of Recovery

A number of economists have started proclaiming that the recession is over, or at least that a recovery is just around the corner. Others disagree. Robert Hall, the chairman of the National Bureau of Economic Research’s Business Cycle Dating Committee, reportedly indicated recently that the group is still waiting for “activity to surpass its previous peak.”

What are the telltale signs of an economic bottom? Depends whom you ask:

• According to Alan Greenspan, the former chairman of the Federal Reserve, you should watch for an uptick in sales of men’s underwear.

• According to Mark Thoma, a professor at the University of Oregon, seeing private sector funds recapitalize banks (”without the aid of government guarantees or other such programs that encourage capital infusions”) and improvements in private-sector nonresidential investment (like buildings and equipment). A rebound in consumer spending and a stabilization in the housing market would also be important, he says.
• The Calculated Risk blog has distilled historical research from the U.C.L.A. economist Edward E. Leamer, and explains the sequence for signs of a recovery proceeds thusly: first residential investment (housing) and consumer spending pick up; then investment in equipment and software increases, and unemployment falls; and finally investment in nonresidential structures rises.
• The Economic Cycle Research Institute uses a shorthand called “the three P’s.” As explained by Daniel Gross of Newsweek, they are: “a pronounced rise in the leading indicators; one that persists for at least three months; and one that’s pervasive, meaning a majority of indicators are moving in the same direction.”
• The Economic Cycle Research Institute’s managing director, Lakshman Achuthan, describes an indicator known as “doggie downtime,” the lag time between the death of a family’s dog and the purchase or adoption of a new dog. Apparently shorter delays indicate the economy is rebounding.

While I’m not sure about doggie downtime and men’s underwear sales, consumer spending has stopped its free fall but is still pretty dismal, and some of the glimmers of hope in the housing market seem to be flickering out. Like housing, nonresidential construction investment has slowed its decline but is still tenuous. Similarly, the pace of layoffs has eased, but job losses continue.

Posted via email from Jim Nichols