It’s official. The economy is in a Melancholy

(Note: I made some parenthetical notes of clarification to this post about three hours after it was first published. Nothing that changes its points. Just some refinement to what I meant.)

OK. It’s official. The official recession-calling panel (The Business Cycle Dating Committee of the National Bureau of Economic Research – NBER) has met and issued the official declaration that the US has been in a recession since December 2007. For those who are confused by math, that means we are, as we speak, 12 months into a Recession.

What is a Recession? Well, most definitions say something about two consecutive quarters of declining economic activity, but according to the official Recession committee, the definition is this:

“A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income and other indicators…it begins when the economy reaches a peak of activity and ends when the economy reaches its trough.”

So, let’s get this straight. According to the authority that actually decides these things, we know these two following things:

1. A Recession begins when the economy reaches a peak and ends when the economy reaches the low point.
2. The current Recession has now lasted 12 months.

So much for the backward looking data, I want to know what the future holds.

Unfortunately, according to the article I’ve linked to above, “The NBER makes no forecast on how long a recession will last, but said that in the past they have run from six to 18 months.”

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Durations of previous recessions.

The NBER website actually includes information about the history of economic cycles, but unfortunately, the NBER website is currently slammed and unavailable, so I’ll link to this CNBC article from 2007 about the history of U.S. Recessions from which the accompanying chart is taken.

So, here’s what we also know:

3. The NBER indicated to at least one reporter that past recessions last from six to 18 months.
4. Data from the NBER indicates that, depending how you state it, you can claim the following:

a. During the past 100 years, Recessions have lasted from 6-43 months.
b. During the past 100 years, Recessions have lasted an average of 14.4 months.
c. Since World War II, Recessions have lasted an from 6-16 months.
d. Since World War II, Recessions have lasted an average of 10.2 months.

5. If you include data from the Great Depression, the average Recession lasts 14.4 months.
6. If you include data since World War II, the average Recession lasts 10.2 months.

(Later: Bloomberg, in this article, says this contraction already the longest since 1982 and that if it lasts for another five months, which is consistent with Fed and private forecasts, it would become the longest since the Great Depression.)

Having observed the coverage of the current economic crisis, meltdown and worst economy since the Great Depression, I feel certain that the coverage of today’s numbers will point towards something a lot worse than merely another two months of Recession. And I’m sure that some people will call me ridiculous if I suggest we’ve already hit the bottom (as in, “the end of the definition of what is officially “the end” of a Recession).

So I’ll merely predict this: I believe the Recession is nearing its end. (Later: I need to refine my definition a bit to say that I mean the contraction is closer to the end than to the beginning; that it is more than halfway to its end.) I believe that we were actually heading out of it on September 15 and it has been extended and exacerbated because of the hyper-coverage of the economy during the past three months.

I believe that this is the first time in my life that to believe as I do — to even consider that the economy is slowly improving and not crumbling — is rejecting the conventional wisdom to such a degree as to be classified a cynic. Well, I am. It may not be prosperity I see right around the corner, but it’s not a Depression either.

An additional thought: The article to which I pointed above includes this nugget: The NBER has no definition of a Depression. There’s either economic growth or economic decline.

In other words, “Depression” is not an official economic term as defined by the official economic cycle calling body. Apparently, it is a label for an emotional response to a deep Recession.

I think we should come up with a similar word to describe our emotional response to an average Recession: Perhaps, a Melancholy. Maybe what we’re going through is a worse-than-average Recession, so perhaps we should call it, a Great Melancholy.

  • >>>So I’ll merely predict this: I believe the Recession is nearing its end.

    I really wish I had a fat wad of cash to bet you with.

  • I don’t know if hyper coverage is the cause. You have to remember President Bush’s sudden warning of economic mushroom clouds. No, this was caused by failed leadership that told the American people for months the exact opposite of what was really going on. Reality just hasn’t been a friend to an ideology that thrives in a make-believe world detatched from facts and science.

  • @Christian – I think I agree with you, unless, that is, you’re saying I’m detached from facts and science. @Mike always thinks I’m detached from reality. However, he doesn’t know I actually have MREs stored in a cave in Hickman County.

  • Back in the day, I was taught that a recession was the result of a minimum of two quarters of negative growth (or decline, I guess). If that’s the case, I’m confused as to why NBER is only now announcing a 12 month recession. Didn’t anyone pick up on it six months ago?

  • Rex, I had to stop in and comment on the post… Brilliant! simply brilliant. I must admit I’m very confused as I hear the news every day, and while I hear of poorly managed businesses (e.g. auto-industry), I see people spending money all around: Businesses are still moving forward, spending money to save money; Consumers are still going out to eat, shopping, and spending some money… I can’t say how they are necessarily paying, but I see people checking out!

    So what am I missing here? I’m not an economist, but people are so spooked when they really only need to be moderately conservative. Is this over-reaction of our own making? Have we become so desensitized to what frugality is that we fear not using a credit card means you must be broke in real life (when in fact it usually indicates the inverse)?

  • @Mark – I was taught that also, but in reading about the NBER today, I discovered that a recession is not necessarily two quarters of contraction — a recession is whatever the NBER wants to call it. As for predicting a Recession, one of the indicators I follow is NFIB’s monthly Small Business Economic Trends report which has been at a Recessionary level for well over a year. It was, however, ticking up slightly right before September 15 (the Lehman Bros bankruptcy) and then cratered again, to the third lowest level its been in 35 years. Having watched NFIB’s monthly survey for 17 years, I trust its accuracy when it comes to indicating the mood of Main Street. When it ticks up again for a couple of months, I’ll be willing to predict the NBER will several months later look back and say that was the end of the Recession.

  • Rex, this is an important post with important thoughts — I agree with you. Interestingly I just wrote something similar (although I hadn’t seen your post — but you must have been doing the Vulcan mindmeld with me at distance or something!).

    Anyway, right on!

    Anita

  • I have come back to even dispute abusing the fine term “melancholy.”

    Melancholy can be good.

    Depression is ALWAYS bad.

    And recession? That’s what the frikkin TIDE does.