Experts aren’t ready to make the call on recession

WASHINGTON – April 13, 2010 – The recession is almost certainly over. We just don’t officially know it yet.

The National Bureau of Economic Research (NBER), the group that formally declares the beginning and end of recessions, said Monday it isn’t ready to declare that this downturn is over, though many leading economists firmly believe it is.

The NBER’s panel of erudite academics said most economic indicators “have turned up.” But noting that the data “are quite preliminary” and will be revised, it added that pinpointing the month the slump bottomed “would be premature.”

“It’s probably clearer to them that it’s over, rather than when it was over,” says Nigel Gault, chief U.S. economist of IHS Global Insight.

Nearly all signposts, including economic growth, industrial output, income and retail sales, have been trending upward in recent months. The economy grew a robust 5.6 percent in the fourth quarter and even added 162,000 jobs in March – the first significant gain since the recession started in December 2007.

In fact, several committee members recently said the recession is history. Citing March’s job growth, Jeffrey Frankel, a professor at Harvard’s Kennedy School of Government, wrote on his blog last week, “The recession is over.”

Such remarks are likely what prompted the committee to clarify Monday that it’s not prepared to officially make the call, says Conrad DeQuadros of Decision Economics. A big reason for the caution: The job market has yet to show two consecutive months of big increases. “It’s about lagging job growth,” says Allen Sinai of Decision Economics.

Another reason is this recession has been the longest and most punishing since the Great Depression. Many economists believe it ended in June, meaning it lasted 18 months. “I think we have to bear in mind we’re coming out of a very severe contraction of long duration,” Gault says.

In other words, there is still a chance the economy could slip back into recession, though economists say the risk has been shrinking. The committee pronounced the 1980 recession over in July that year, waiting a year to make the call. That might not have been long enough. The panel later declared a new slump began in July 1981, but some economists believe it was the 1980 slide’s continuation, DeQuadros says.

The committee’s prudence should not stir fears of a relapse, economists say. “We have an entrenched … and sustainable recovery,” Sinai says.

It’s not uncommon for the panel to be slow to call the start and finish of recessions. It took a year, 21 months and 20 months, respectively, to declare the 1980, 1991 and 2001 skids history. The latter two, like the current slide, were plagued by job markets that lagged overall recoveries as employers learned to produce more with fewer workers.

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