The Recession is over

[EconomicsDude]

According the NBER

http://www.nber.org


And excerpt from the Dating Committee's report:

The committee has determined that a trough in economic activity occurred in November 2001. For a detailed discussion of the reasoning behind this decision, see the committee's announcement of the trough at http://www.nber.org/cycles/july2003 / . The trough marks the end of the recession that began in March 2001. The 2001 recession thus lasted eight months, which is slightly less than the average duration of recessions since World War II. The postwar average, excluding the 2001 recession, is eleven months.

http://www.nber.org/cycles/recessions.html

[Cha]

1. We'll see about that.

[whirlygigspin]

2. well that's good enough for me!

let's Party!

it's all good news! Pravda style!

woo! hoo!

[lcordero]

3. On what planet?

[Code_Name_D]

4. It can't be over.

They are still dyning it ever started.

[area51]

5. The recession is not only not over ...

... it deepened into the 2nd Great Depression. You can't have a recovery from a recession w/massive job losses and no new job creation.

Geo. W. Hoover better get worried; it's the masses of the unemployed who will kick his fscking ass out of office.

[EconomicsDude]

8. You can't have a Great Depression with...

Rising GDP and rising personal incomes either.

[Code_Name_D]

12. On the contrary.

The great depsresion was marked with simuler indecators.

[EconomicsDude]

13. You really should...

...check your facts first.

GDP declined in the following years:

1930: -0.086
1931: -0.064
1932: -0.130
1933: -0.014

You can get this data for free at the Bureau of Economic Analysis' website:

http://www.bea.gov/bea/dn/gdpchg.xls\'

Similarly for National income.

1930: -0.129
1931: -0.201
1932: -0.273
1933: -0.057

By 1933 National income was less than half of what it was in 1929.

This is also available at the BEA's website.

So no, there weren't GDP and incomes were not increasing.

[jafap]

6. do we hope for another recession?

The key paragraph is this:

"In determining that a trough occurred in November 2001, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month. A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The trough marks the end of the declining phase and the start of the rising phase of the business cycle. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion."

Sometimes I think that I am perversely happy about bad economic news, but really I would not mind if the economy got so good that I was able to get a full time job with benefits.

Now that I think about it, I hope these professional economists are not so stupid that they think a normal Christmas surge is a real economic expansion. Did the rising phase last past January? I did not see any of the numbers, only the conclusion.

[EconomicsDude]

9. Okay...

...if you look at the data for the last recession and the following recovery you had a similar picture. The recession ended in March of 1991 and unemployment kept rising well into 1992. It didn't start declining until the last few months of 1992. You can see this by going over to the BLS website and looking at the data.

http://data.bls.gov/cgi-bin/surveymost?ln

That page allows yout download the series LNS14000000 which is the civilian unemployment rate. After downloading the the first time you can change the years and also have the data depicted in a graph. Push the data back to say 1989 and click to see a graph and you'll see that unemployment didn't start to decline until July of 1992.

Now that I think about it, I hope these professional economists are not so stupid that they think a normal Christmas surge is a real economic expansion. Did the rising phase last past January? I did not see any of the numbers, only the conclusion.

You need to follow the links and look around NBER's website, they have graphs of the data.

[jafap]

15. okay I looked at the pdf graphs

I see that GDP did start to rise in Nov 2001 and it kept rising. Trouble with this is that the graph for unemployment and the supposed lag of employment recovery. For the other recessions the graph for employment looks like a V - it rises rapidly after the recovery. Not so this time. 1991 may be different from the others, but the people did not believe in the recovery then either. My small city is currently looking at cutting their budget by $600,000 which I figure is at least twenty jobs which will ripple. I do not remember if the same things were happening in 1991.

[EconomicsDude]

20. Unemployment IS a lagging indicator...

Please, do a google search. Call your local college/university and ask the econ. professors. Go to Borders and look in any macro economics text.

Here are some links:

http://www.investopedia.com/terms/l/laggingindicator.as...
http://www.investorwords.com/cgi-bin/getword.cgi?2713
http://pages.stern.nyu.edu/~nroubini/bci/Unemploymentra...
http://money.cnn.com/2003/06/06/news/economy/jobs /
http://www.topline-charts.com/Encyclopedia/volume28list...

You can also download things like GDP (which is a coincident indicator and goes up when the expansion starts) and unemployment and graph them together and see that indeed GDP goes up first, then later unemployment starts going down.

There are two reasons for this that I can think of:

1. Upon hearing good news, people who had left the labor force (i.e., just stopped looking for a job) come back in.
2. Firms, not sure that the economy is going to keep on improving first take up the extra demand by letting current employees work overtime.

There is also this from the memo relseased by NBER

Q:The most recent data indicate that since November 2001, the unemployment rate has risen from 5.6 percent to 6.4 percent and payroll employment has fallen by almost a million jobs. How can the NBER say that the economy began an expansion in November 2001?

A: The NBER defines expansions and recessions in terms of whether aggregate economic activity is rising or falling, and it views real GDP as the single best measure of economic activity. Real GDP has risen substantially since November 2001. However, this growth in real GDP has resulted entirely from productivity growth. As a result, the growth in real GDP has been accompanied by falling employment. Unemployment has risen because of falling employment and because the labor force has been rising.


And there is also this:

In determining that a trough occurred in November 2001, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month. A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The trough marks the end of the declining phase and the start of the rising phase of the business cycle. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion.

http://www.nber.org/cycles/july2003.html

Until the growth rate in GDP picks up unemployment wont be going down and may even go up. This has to worry Bush because simply being in a recovery isn't good enough as his father learned.

Plus, if you go to the latest BLS release on unemployment

http://www.bls.gov/news.release/empsit.nr0.htm

If you scroll down to the tables you'll see that the number of people in the labor force increased by 365,000 while unemployment increased by 360,000.

[jafap]

30. I happen to be a University Economics professor

Okay, I worked as an associate instructor 13 years ago, but you can still put your arrogant patronizing where the sun don't shine.

You quoted a paragraph that I had quoted two posts before in this same thread. Gee, maybe I have not even read my own posts.

You may want to try following your own link http://www.nber.org/cycles/july2003/recessions.pdf

and look at the graph on page six of how payroll employment rises like it has taken viagra in the recovery of the previous six recessions and how it stumbles along like a punch drunk boxer in this so-called recovery.

So they make noises about employment being a lagging indicator, but it was not for the other six recessions. By their own graph, this "recovery" looks different. Can they say why? They also say they could legitimately define a recession by % of capacity used. If they did so, how would today's economy compare to other downturns?

[EconomicsDude]

36. One more time

and look at the graph on page six of how payroll employment rises like it has taken viagra in the recovery of the previous six recessions and how it stumbles along like a punch drunk boxer in this so-called recovery.


If the labor force is increasing at a faster rate than unemployment then you can have rising unemployment AND rising employment. No mystery there. Perhaps if you weren't so cocksure you were right (because your a professor...ooohhhh) you might actually learn a few things.

So they make noises about employment being a lagging indicator, but it was not for the other six recessions.

Try responding to what I have written, I did NOT say that employment was a lagging indicator, but the unemployment was.

By their own graph, this "recovery" looks different.

Okay a couple of things. First, the graph. The graph plots the current employment situation and the average of the last six recovery/recessions. Averages in a sense hide information. Suppose you have the sequence 6, 6, 6, 1, 1, 1 the average is 3.5, but the actual individual observations are quite different. The last recession/recovery had a similar pattern. A recovery that has a prolonged period of sluggish growth in GDP and rising unemployment. So this brings us to the second point, no, this recovery is not different it looks similar to the last one in some ways. It is different from the norm, but it isn't completely surprising given the previous recession/recovery.

Can they say why?

Nope, not entirely. They can point to sluggish growth in GDP as to why unemployment is rising/not going down, but beyond that from what I have read most don't have a clue as to why it is taking so long. Most macro models say that with the kind of stimulus there has been (tax cuts and low interest rates) the economy should be going like a bat out of Hell. But it isn't.

[Code_Name_D]

39. Eggs do not bounce.

Myth: Tax cuts spur economic growth.
http://www.huppi.com/kangaroo/L-taxgrowth.htm
There is no historical evidence that tax cuts spur economic growth. The highest period of growth in U.S. history (1933-1973) also saw its highest tax rates on the rich: 70 to 91 percent. During this period, the general tax rate climbed as well, but it reached a plateau in 1969, and growth slowed down five years later. Almost all rich nations have higher general taxes than the U.S., and they are growing faster as well. – Steve Kangas

Myth: A capital gains tax cut will spur the economy.
http://www.huppi.com/kangaroo/L-capgainsspur.htm
Summary

There is no historical evidence that cutting the capital gains tax spurs economic growth. Cuts have usually been followed by economic downturns and reductions in saving and investment. Increases have generally seen the opposite. The theoretical case against cutting capital gains is also strong; most serious economists acknowledge that even eliminating this tax completely will not increase productivity, and may even do significant economic harm. – Steve Kangas

And to follow these links, you will see the statistics he uses to back up his claim.

They can point to sluggish growth in GDP as to why unemployment is rising/not going down, but beyond that from what I have read most don't have a clue as to why it is taking so long. Most macro models say that with the kind of stimulus there has been (tax cuts and low interest rates) the economy should be going like a bat out of Hell. But it isn't.

If you assume an egg can bounce, then throw it into the ground expecting the egg to bounce, and it doesn’t bounce. Than you fundamental understanding of the egg must be flawed.

If you assume that tax cuts spur the economy, cut the taxes, and the economy continues to languish, than your understanding of economics must equally be flawed. Here I have shown you where Steve Kangas has shown that tax cuts have the opposite effect on the economy, and sun of a gun, Bush's tax cuts have resulted in an economy more in keeping with Kangas understanding that these models that you sight. What more evidence dose one need to show that you preach junk science, not economics.

Supply side economics is nothing more than a hog-pogo collection of self serving agendas, thinly concealed by an endlessly shifting sea of reasoning. Ragan cuts the taxes, and the economy languishes, Bush consults the think tanks and new convoluted reasoning is cooked up for the same cuts taxes, and again the economy goes into recession, combined with the economic burdens of the Gulf war, also mistakenly thinking that wars spur an economy. Bush II again shifts the sea of reason, to justify more of the same tax cuts, and by golly, the economy tanks once more. Are we seeing a trend here? How can you NOT see a trend here, is the question that I have for these "models." Sooner or later, you are going to have to concede the fact that tax cuts do not spur the economy, any more than eggs bounce. But one wonders how many of our nest eggs it will take?

[jafap]

40. well, there you go again

The key to winning an argument, it seems, is not logic or facts, but to come up with the cleverest way to belittle those who disagree with you.

"Perhaps if you weren't so cocksure you were right (because your a professor...ooohhhh) you might actually learn a few things."

That is one theory, but I would hypothesize that you might have more success teaching if you were not disparaging those you wish to educate.

Things like "try responding to what I have written" are not germaine to any argument about the economy. Their only relevance is to the proposition "jafap is an ignorant idiot", which, while certainly an interesting thesis, needs to be argued on a different thread.

As I said, I find things like this to be a little patronizing: "Averages in a sense hide information. Suppose you have the sequence 6, 6, 6, 1, 1, 1 the average is 3.5, but the actual individual observations are quite different. The last recession/recovery had a similar pattern."

Especially when I had already conceded that point: "For the other recessions the graph for employment looks like a V - it rises rapidly after the recovery. Not so this time. 1991 may be different from the others, but the people did not believe in the recovery then either."

Oh well, I am sure that the economy's production of kindness and understanding are lagging indicators. The economy will start producing them, for a profit, any day now.

[phgnome]

33. but...

Doesn't really matter about a "rising GDP". It's not a true indicator anymore because 190% of the economy's GDP is made up of the capital market.

Why's everyone so obsessed with "expansion" anyway? How much more can we expand?

Two words: diminishing returns.

I hear so many people complain about American hegemony but, in the same breath, talk about economic "expansion". It's a paradox after a certain point.

Consumer confidence is low because people think that "expansion" is the only way of getting out of the recession (besides war). The economy is already enormous ... one of the biggest in the world.

Aim for a break-even economy. Believe in break even companies as investors. Don't shoot a company down as an investor because they can't promise profits in their forecast -- give them a chance to break even. Aim for a stable society and not for personal gain. Sometimes people lose sight of the aim of capitalism (which, by the way, is not good or bad but just a way of running an economic system).

The economy is like a child. Yes, you want the child to grow up big and strong BUT, you also don't want to overfeed your child -- you want to feed them enough so that they can be strong but not have them eat too much ("expansion and growth") and grow to a point where it is very difficult to move. Agility is just as important as "big and strong".

[EconomicsDude]

37. Errr....no

Doesn't really matter about a "rising GDP". It's not a true indicator anymore because 190% of the economy's GDP is made up of the capital market.

Why's everyone so obsessed with "expansion" anyway? How much more can we expand?

Two words: diminishing returns.

Diminishing returns does not mean that GDP cannot increase.

Aim for a break-even economy. Believe in break even companies as investors. Don't shoot a company down as an investor because they can't promise profits in their forecast -- give them a chance to break even. Aim for a stable society and not for personal gain. Sometimes people lose sight of the aim of capitalism (which, by the way, is not good or bad but just a way of running an economic system).

People don't just want to maintain. They want to make their lives better. And why invest in a company that can turn a profit? Why waste your money? You invest (give) a company your money because they will presumably make a profit, i.e., you'll get your money back plus some extra. A company that breaks even is simply using your money and giving you nothing in return. Further, it sets up a bad incentive scheme. A company might spend profits on perks and other things so they can report zero profits. In essence your profits end up going to somebody else.

The economy is like a child.

What a horrid simile. The economy is not a living organism and hence is not constrained by similar constraints as living organisms.

[Code_Name_D]

38. Again, you jump into the void.

Looks like quite the dog pile on you there. I am just sitting back and watching you try and try in vain to defend your recovery claim. And it seems that your efforts prove to be more futile with each post.

Two words: diminishing returns.

Diminishing returns does not mean that GDP cannot increase.

You fail to address the point. It doesn’t preclude that GDP can not expand, but that such exertion will return less and less as more effort is directed into the expansion. GDP may indeed be expanding, but the economy is still contracting because of the fact that the US is bleeding both jobs and capital. And GDP doesn’t look so rosy when you place it along side the ever growing mountain of debt held by the government, the population, and industry alike. If GDP is growing, it is only because corporations are consuming the sead corn by shipping the jobs over seas and trying to secure additional revenue streams from sources they did not produce, nor have any intention of maintaining. Through deregulation and privatization of water, electricity, education, policing, and health care, just to name a few.

People don't just want to maintain. They want to make their lives better. And why invest in a company that can turn a profit? Why waste your money? You invest (give) a company your money because they will presumably make a profit, i.e., you'll get your money back plus some extra. A company that breaks even is simply using your money and giving you nothing in return. Further, it sets up a bad incentive scheme. A company might spend profits on perks and other things so they can report zero profits. In essence your profits end up going to somebody else.

Oh, I love this kind of reasoning. But for this to make senses, you need to add the word "corporate elite." But the rest of us are NOT seeing things improve. We are watching our taxes go up, services cut, jobs being ship over seas, nest eggs disagreeing, and investments failing. Not to mention the rampant and un-check corruption in the system that has created a two tired judicial system in America. If I steal $25 bucks out of gas station's cash register, I get throwen in jail for five years. If "Keenyboy" steals 20bill from his own workers, he gets to walk Scott free.

The fact it that companies are NOT providing profits. Why else would they have make the price to earnings ratio a thing of the past? Heck, they aren't even braking even, because all of the money is finding its ways into the hands of the "investors" FIRST. Then things like operational expenses and wages gets what ever is left, and its an ever shrinking slice of the pie as the "investors" take out more and more.

The economy is not a living organism and hence is not constrained by similar constraints as living organisms.

Translation: The economy will continue to grow for ever, even when vital recourses such as oil disappear. You just goata love that blind arrogance. If this were true, that a market bubble wouldn't exist, would it. The great depression never would, or even could, have happened? The Roman Empire never should have fallen. The dark ages were never stick in an endlessly depressed economy, the American Revolution would never have happened because the colonist would have no reason to rebel because of over taxation. Entirely civilizations would never have fallen because of drought or famine. In fact, I bet you the ancient city of Pompeii is STILL a bustling see bort or commerce, even though its citizens were buried in ash.

The fact is that economies ARE constrained by available recourses, as well as the need to consume those recourses. You can no more build an economy where the demands of these resources do not exist, any more than where you can build an economy where resources do not exists.

[rogerashton]

27. The numbers are usually "seasonally adjusted"

to allow for things like that -- if anything they may overadjust in come cases.

[Code_Name_D]

7. Even BUSH dosn't beleive it.

http://story.news.yahoo.com/news?tmpl=story&cid=1504&nc...

Bush defends budget deficits, says economy will improve


DEARBORN, Michigan (AFP) - President George W. Bush brushed aside criticism of a record federal deficit in his budget projections, saying the recession and the war in Iraq are to blame.

"We've got a deficit for a couple of reasons," Bush said during a visit to Dearborn, Michigan.

"The main reason is, is that when you're in a recession, less money is coming into the Treasury. When the economy slows down, there's less tax revenue coming into the US Treasury. And we've been going through slow economic times."

He added that the war in Iraq has been expensive as well.




This was JUST posted in the latest braking news room. Pardon me while I sniker over here in the corner.

moew

[EconomicsDude]

10. I don't see the problem...

...the recovery is quite weak. Just like the last one.

[Name removed]

11. Deleted message

Message removed by moderator. Click here to review the message board rules.

[EconomicsDude]

14. So...

Robert Hall, Chair
Martin Feldstein, President, NBER
Jeffrey Frankel
Robert Gordon
Christina Romer
David Romer
Victor Zarnowitz

These guys are all morons? Oh...wait they have jobs, and lets ignore that unemployment is a lagging indicator (i.e., it peaks after the recession ends).

[stevebreeze]

16. not idiots but not exactly working people either

they will be true to their ruling class roots. This is NOT the 90 recession either. Many of the jobs especially the manufacturing jobs are gone for good(overseas). The tax cuts targeting the rise of the stock market are working, unfortunately money is leaving the bond market to pump up the stock market. Falling bond demand raises interest prices, especially on mortgage interest rates. This may well suck the life out of the housing market, and so the whole economy.
Bush may well have put us in the position Japan was in 10 years ago.

[EconomicsDude]

21. Heard this before...

they will be true to their ruling class roots. This is NOT the 90 recession either. Many of the jobs especially the manufacturing jobs are gone for good(overseas).

This was something that has been around for a long time. It was Ross Perot's line and Al Gore showed that Perot's neo-Protectionism was quite overwrought.

The tax cuts targeting the rise of the stock market are working, unfortunately money is leaving the bond market to pump up the stock market. Falling bond demand raises interest prices, especially on mortgage interest rates. This may well suck the life out of the housing market, and so the whole economy.
Bush may well have put us in the position Japan was in 10 years ago.


Which is why interest rates are so low even for mortgages (yes they have been rising, but they are still quite low)?

[stevebreeze]

28. no offence to your memory but

in fact we LOST jobs due to NAFTA. It matters not that Gore "won" the debate with Perot. Winning an argument on style and winning on facts are two different things.
Yes interest rates are still quite low but refinancing has almost stopped. Housing purchase are still quite high but lag changes in interest rates even though they are greatly effected by them. 1 housing purchase take time especially new construction which can often be 6 months or more before they show up in stats due as they do not register until construction is complete. 2 When interest rate start to climb many will jump on the bandwagon before interest rates rise even more. This makes them look for a while as if sales will continue when what often happens is they fall of the cliff.

[Talon]

17. EcoDude

How long does the sumofobitch gonna lag fer? Huh? That is the biggest bunch of BS I have heard. Tell me, just what industries are hiring? This is a service economy about to go bust. You have to have a comparative advantage on something that most of the rest of the world needs. I don't have time enough, nor the money to become a doctor, and we sure the hell don't need another barber in town. So tell me, what sector is going to ramp up and absorb all those white collar dudes, like me?

[Talon]

18. Read this, if you still believe in a recover: and read if ya don't, too.

http://www.msnbc.com/news/940725.asp?0dm=N13LB

[EconomicsDude]

23. That would be a huge mistake...

...the last time there was protectionist legislation to increase employment all that ended up happening was prices going up. Now this would be bad for Bush (people don't like paying more for the things they buy), but it is also bad for consumers. Their standard of living will go down.

[kalian]

19. That's the question now, isn't it?

And I'm sure that more than one true economist is scratching their
head (or their arse) and wondering where exactly US jobs will
surface.
Sure as hell not in IT...that's all in India or the Philippines
now.
Sure as hell not in manufacturing...

What's left...? What is TRULY left within this economy?

I personally believe that they're keeping this VERY low key since it
would ruin the entire political establishment, both left and right.
Its just a matter of time, the implosion has commenced.

[EconomicsDude]

24. LOL...

Its just a matter of time, the implosion has commenced.

...yes they have been making predictions like this since 1867.

[kalian]

25. Head in the sand mentality...

Its understandable.
Enjoy...

[EconomicsDude]

31. Yes...

I'm sure eventually you'll be right. Still after almost 140 years you'd think people would come up with another dire prediction.

[Code_Name_D]

42. About that prediction.

Just becase you won at rushen rullet, five times in a row, dosn't mean you are invicabule.

[EconomicsDude]

22. In the last recovery it lagged for...

...16 months IIRC. That is unusually long. Currrently I think unemployment has lagged for 17 months. The problem is that after a bubble traditional policies seem not to have alot of traction.

Here is Stephen Roach from Morgan Stanley on this:

http://www.morganstanley.com/GEFdata/digests/20030627-f...

Excerpt:

The Fed has been unusually aggressive in attempting to achieve that objective. Thirteen easings over the past 30 months and 550 basis points later, however, the central bank has little to show for its noble efforts. It’s not the lags, in my view. By now, all conventional macro models would have expected the “policy multipliers” to have delivered -- not just on the basis of monetary stimulus but also in response to the Bush Administration’s first round of fiscal stimulus implemented in early 2001. Sure, there were several special circumstances that temporarily got in the way -- namely, the terrorist attacks of September 11, 2001 and the more recent war in Iraq. But in the aftermath of each of those disruptions, the US economy has failed to spring back. If policy stimulus was achieving the traction that traditional macro called for, there should have been a powerful post-shock snapback in each instance. But there wasn’t.

So Bush has lots to be worried about, IMO.

[Cassandra]

26. I keep wondering if this report is meant to separate....

the recession the Repugs like to blame on Clinton, from any other recession (like the one we have now) that can only be blamed on Bush*.

[rogerashton]

29. The concept of recession just isn't as relevant to our economy

as it used to be. Until 2000 I taught my students (as most texts said) that a recession was defined as 2 consecutive quarters or more of declining real GDP. Plus that stuff about unemployment being a lagging indicator. Last fall and winter I told 'em that a recession was whatever the NBER said it was -- since the NBER was fudging around and saying that they were looking at other variables. But they have gone back to the objective definition of the term, and their dating is consistent with all other historic recessions. That is the right way to do it. But, before 1990, "recessions" and "macroeconomic troubles" were pretty much coincident. That does not seem to be true any more.

After the last recession we had a stagnation, with high unemployment, continuing until about 1995. That was new. It was widely blamed on slow productivity growth. Actually, productivity growth surged in the period immediately following the recession, though it then stagnated 1993-5.

This time, we see the same thing, a big surge in productivity following the recession.

That's been a normal pattern in most postwar recessions. What it means is that companies keep cutting expenses after demand starts to pick up a bit. But it has been somewhat extreme in this recession, partly because the base rate of productivity growth is higher.

What that means is that GDP has to grow faster in order to increase or even maintain employment. It has not done so, and the real worry is that (with business expectations as they are) it may not do so for a number of years -- as in Japan. You may call that whatever you wish -- it is not a healthy economic state.

[EconomicsDude]

32. Well...

After the last recession we had a stagnation, with high unemployment, continuing until about 1995. That was new. It was widely blamed on slow productivity growth. Actually, productivity growth surged in the period immediately following the recession, though it then stagnated 1993-5.

I guess that depends on what your definition of high unemployment is? Unemployment in 1994 started out around 6% and went down steadily and by 1995 was below 5% most of the time, which historically, is quite low.

This time, we see the same thing, a big surge in productivity following the recession.

That's been a normal pattern in most postwar recessions. What it means is that companies keep cutting expenses after demand starts to pick up a bit. But it has been somewhat extreme in this recession, partly because the base rate of productivity growth is higher.

What that means is that GDP has to grow faster in order to increase or even maintain employment. It has not done so, and the real worry is that (with business expectations as they are) it may not do so for a number of years -- as in Japan. You may call that whatever you wish -- it is not a healthy economic state.


Yes, I've been wondering if there hasn't been some sort of change in the economy that the macro models and macro-economists aren't aware of yet.

[rogerashton]

34. OK, good point.

Note that the decline in unemployment coincided with some of the slowest productivity growth of the recent generation. I have always been of the school of thought that there is nothing "natural" about a "natural unemployment rate" of 5 to 6 percent, but that it was a consequence of macroeconomic policy, so I do regard 5% as high. I feel somewhat vindicated by the experience of the late 90's.

There is a good deal of evidence that the inflation-unemployment trade-off is worse when productivity growth is lower. (See Brad de Long's intermediate macro textbook). That's a puzzle macroeconomics has not solved!

[EconomicsDude]

35. Interesting...

macro isn't really my thing, so I hadn't heard of this (inflation-unemployment trade-off is worse when productivity growth is lower). All in all, while the end of the recession is a good thing, it doesn't mean Bush is out of the woods by a long shot. If GDP growth remains anemic for too much longer then he could be facing a similar problem his father did in 1992. Unemployment was declining in mid 1992, but the impression for most people was that economic times were not getting better (Clinton was real good at spinning that).

[HungryLoser]

41. The man in the T.V. set told me

The economy is vibrant, stocks are doing good.
I'm confused though, is the economy JUST the stock market?