Great Recession Over?

ICangles Investment Post…

Earlier this week the National Bureau of Economic Research, the official arbiter of the economy, declared that the so-called Great Recession ended in June 2009. Having started in December 2007 and lasting for 18 months, it represented the longest recession since the end of the Great Depression. The NBER found that a mix of economic indicators it tracks began a period of sustained growth starting last June, driving the economy as measured by gross domestic product (GDP) higher. But whether you consider the recession over depends a lot on your definition of a recession.

The news, however, came with the caveat that this particular recession is notable for the severity of its downturn and weakness of its recovery. Typically, steep recessions enjoy strong recoveries. But not in this case so far. In addition, it was also admitted per my last investment post that employment remains weak. In fact earlier this week on Monday the Organization for Economic Cooperation and Development in Paris predicted the U.S. unemployment rate will not fall to pre-recession levels until at least 2013.

Given the depth of the decline in economic activity, the weakness in growth and persistently high unemployment it is no wonder that to many people it doesn’t feel like the recession is over. And among those who don’t believe the recession is over is Warren Buffett. He made the point that he would not consider it over until real per capita gross domestic product returns to its pre-downturn level. Unfortunately that could be a ways off. Despite being officially over the recession will almost certainly feel like it is ongoing until per capita GDP recovers and employment improves. (With all this said though, the point should be made that it is usually during the worst times that the best buying opportunities present themselves in the stock market. Buffett has made a fortune for himself partly by buying stocks during bad economic times.)

When one looks at all the data it is no wonder that people feel like the recession is ongoing. Beyond the impact on the job market are two other factors that make these times especially difficult. First is the fact that personal incomes have stagnated for the entire decade when including the downturn driven by this recession. Despite weakness in personal income prior to the recession many people still felt better off due to rising residential real estate prices.

And that brings us to the second factor making things so difficult nowadays. This recession was characterized by a drop in both real estate and stock prices that not only took a toll on jobs in the housing and financial sectors, but eliminated large amounts of household wealth that had served as a consolation for the lack of income growth. When you put it all together it doesn’t mean the next decade is lost, but it does indicate the previous one could be considered a lost decade with the fallout from the Great Recession and the benefit of hindsight.

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