The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), the accepted arbiter of turning points in the economy, has announced that a trough in business activity occurred in the U.S. economy during June 2009. This marks the end of the recession that began in December 2007, which at 18 months' duration is the longest recession since World War II. It is also the deepest postwar downturn in GDP terms, with a peak-to-trough decline of 4.1%.
The determination does not imply that the economy is "doing well" or "back to normal." Indeed, GDP has not yet regained its previous peak. It merely means that the committee feels confident that it can identify a mid-2009 trough in activity, and that a recovery began at that point. The committee expresses no opinions about the future path of the economy.
Nor does the determination mean that the economy cannot "double-dip." It just means that a renewed downturn, should it occur, would be treated as a new recession and not as a continuation of the one that began in December 2007. The language that people use to describe the threat of a renewed downturn may perhaps evolve from "double-dip recession" to "back-to-back recession."
The committee's decision should come as no surprise. Most observers, including IHS Global Insight, have for some time assumed that the recession trough was in mid-2009. The committee last reviewed the question in April, but was not ready at that time to make a determination. The July revisions to the national income accounts (which clarified the paths of gross domestic product and gross domestic income during 2009) have bolstered the NBER's confidence that the trough was in mid-2009.
It is not unusual for the committee to wait well over a year before making its determination of the business cycle trough. The average wait after the four previous recessions was 15 months, so the wait this time exactly matches that average.
Our own outlook assigns a 25% probability to the double-dip outcome, but we view the most likely path as a continuing but painfully slow recovery.
by Nigel Gault