Market Talk

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.”

Even if job growth remains positive, it will likely remain sluggish at best. “At current rates of job creation, the unemployment rate will still be over 9% a year from now,” he notes. “So this is by no means an ‘all clear’ signal for labor markets.”

Here’s the important thing to remember: just because the recession may be officially over doesn’t mean its time to cheer the recovery. As we’ve stated time and again, the economic recovery has a slog ahead, especially as the unemployment rate sits at 9.7%, underemployment rose last month to 16.9%, foreclosures are on the rise and consumer spending remains tepid, at best.

But from the glass half full perspective, declaring the recession is over has a positive psychological impact. If we’ve truly bottomed out, we should be grateful that the economy has nowhere to go but up, no matter how sluggish growth turns out to be.We’ve long argued that the economy was still getting worse, albeit at a slower pace, even as the stock market has soared off the March 2009 lows.

If the bottom is in, we should take solace in the fact that arguably the worst downturn since the Great Depression is over. It’s not time to bust out the champagne yet – it will take years to recover from the horrible destruction that took place over the last few years.

But a slowly recovering economy is certainly better than a weakening one. Even the bears have to agree with that.