It was recently reported by the National Bureau of Economic Research (NBER) that the recession ended more than one year ago. This organization was founded in 1920 and is a private, non-profit, nonpartisan research organization dedicated to the understanding of how the economy works. Before you laugh and ask what do they know? This is important and beneficial news.
I understand there are still millions unemployed and millions more under-employed, and the difficulties they face are immense. As with this recession and most before it, the unemployment did not peak until the recession ended, and it appears the decline in our current unemployment will be a slow process. The primary fact to recognize is that our economy is no longer contracting but is actually growing. Those who are unemployed have little hope of gaining a job, if the economy is still contracting; thus, this announcement may shift the sentiment about the economy.
The end of the recession was determined to occur in June 2009 when a trough occurred in our economic output per the NBER. Prior to the second quarter, the U.S. economic output had been declining. By the end of June statistics indicated economic output had actually started to grow slightly. The domestic production is not at the prerecession amount but the trend is now growing economic output rather than a contracting economy. It is this change in direction which signaled the end of the recession, regardless that our economy is still perceived to be weak.
Of the data points tracked, there are several sentiment indexes followed. Generally when these are rising, they are often leading indicators of the direction of the market as well as the economy. It is clear the economy has difficulty in growing when Americans are feeling worse about their situation from one month to the next. However, the opposite is also true.
All recoveries include job gains, although each recovery reflects various levels of job growth strength. The period after the 2001 dot com recession is known as the jobless recovery. This is actually an over simplification, since job growth did occur. It did take more than three years for the labor force to reach its prerecession levels of employment. It was due to this longer than normal recovery period for it to be classified as jobless. As such, the U.S. may be in a similar recovery period in the terms of job growth unless additional action by the Federal Reserve or Congress specifically causes expansion and thus hiring to occur.
Despite the outlook for slow employment gains, this does not imply the investment markets will have the same experience. September, normally a month often causing concern for investors rather than cheers, is thus far showing its “good twin” side. Whether these gains are here to stay is yet to be seen, but investors must remember the markets generally moves in anticipation and rather than confirmation.
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