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The Recession is Over! or Maybe Not

The NBER, the National Bureau for Economic Research, which is the official caller of these things, announced that the current recession ended in June 2009. I have something of a love-hate relationship with the NBER. It is only retrospective in its calls. So I found it frustrating that in the late summer of 2007 I was predicting imminent recession and it took the NBER to the end of 2008 to make the same call, putting the start of recession in December 2007.

Now I think the NBER has called the end of recession too soon. Indeed I don't think the recession ever ended. What we have seen is ongoing deterioration in fundamentals, like employment and real estate, both private and commercial. Stimulus spending temporarily slowed the rate of decline and that with inventory rebuilding may even have brought the economy to a zero point, but not a reversal. What tipped the scales for the NBER, I think, is that superimposed on this, we have had stock and commodities market bubbles beginning in March 2009 and fueled by the Fed's ZIRP and other programs. My problem is that the NBER does not distinguish between a real reversal and a smoke and mirrors one.

In making its December 2007 call, a prime consideration for the NBER was the drop in employment against a backdrop of very poor job creation throughout the Bush years. Now the NBER is effectively ignoring employment in its call, citing it as a lagging indicator. There are two problems with this. A few weeks ago, I calculated the rate of un- and under- employment as of the end of August 2010 at 19.5% or 31.1 million. This is a huge number and there is simply nothing on the horizon that indicates, lagging or not, it will improve. And there are signals, such as the end of the stimulus and the large shortfalls in state and local budgets, that it could get significantly worse.

Perhaps the NBER could refine its conclusions. For the upper 10%, the recession ended in June 2009. For everyone else, it never did and looks like it will get considerably worse.

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Submitted by Hugh on

Corrente is now working fine for me.

As far as I can see, the SGS number just assumes a higher baseline for the U6. If you moved the U6 up it would superimpose on the SGS line. I would tend to think that the number of long term unemployed would fluctuate over time. I would expect a narrowing during the boom years of the Clinton bubble when a lot of jobs were created and an increased widening of the two since the current recession began in December 2007.

As I explained in the link, to get an estimate of the unemployed BLS is missing, I took the pool of potential workers, what the BLS calls the civilian non-institutional population, and applied a boom level workforce participation rate (67%). I then subtracted from it what the BLS is currently reporting as the size of the workforce.

238.099 million X 67% = 159.526 million
159.526 million - 154.110 million = 5.416 million

Convert the U-6 to a number

154.110 million X 16.7% = 25. 736 million

Add these

25.736 + 5.416 = 31.152 million (my count of un- and under- employed)

Convert this to a percentage (we need to use the larger workforce number because it includes those the BLS is missing)

31.152 million / 159.526 million = 19.53% or rounding 19.5%.

Consider the SGS rate of 22%. It's 3.5% higher or

(31.152 + x)/(159.526 + x) = .22

x = 5.056 million

Add this to 159.526 million. This gives 164.582 million

Divide this by 238.099 million, the civilian non-institutional population. This gives a workforce participation rate of 69.1%. Is this possible? I suppose but it looks high. SGS needs to come up with a better rationale than a counting change dating back to 1994. While the percent difference doesn't look like that much from my rate, because we are dealing with such large numbers, it is, in fact, nearly double my number. 5.416 million vs 10.472 million, i.e. my number 5.416 million + their additional number 5.056 million (representing those whom the BLS has missed or no longer tracks and counts).

I don't mean to imply that my numbers are etched in stone. You could vary the participation rate slightly and establish a range, for example. But overall they tie in with other BLS data and the nature of this particular recession (where we know BLS counts are missing long term unemployed) to give a better picture of the unemployment situation. As the superimposable graphs suggest, SGS isn't taking anything particular about the current recession into account. It needs to tie its number into something like current or recent data and it needs to explain how its much higher unemployment rate fits into the booms, bubbles, and busts of the last 16 years.