When will the Recession End?

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As every day seems to bring more economic turmoil, people are asking one simple question. When will the economic recession end? Wrapped up in this question are three questions that affect most of us. When will real estate values stop going down? When will the unemployment rate stop going up? And when will the stock market stop going down? We are now at month 14 in the current recession, which is actually good news. If history is any gauge, the recession should be nearing its end. Let’s take a look and see why.

What is an economic recession?

The most widely used definition of a recession is the reduction in a country’s gross domestic product over two consecutive quarters. Under this definition, we don’t know we are in a recession until we’ve been in one for six months or more. In the United States, the National Bureau of Economic Research determines whether and when the country has entered a recession. The National Bureau defines a recession as “a significant decline in [the] economic activity spread across the country, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales.” According to the NBER, the U.S. entered its current recession in December 2007. Thus, we are currently in month 14 of the recession.

How is a recession different from a depression?

Some often use the words recession and depression interchangeable, but they really have two different but related meanings. While there is no “official” definition of depression, most definitions proposed by economists relate to a severe receission, either in terms of contraction, duration, or both. For example, some have defined a depression as a “sustained recessionary period in which the population is forced to dispose of tangible assets to fund every day living, as was seen in the US and in Germany in the 1930s.” Others define a depression as a “fall in GDP of 10 per cent or more before a recession would be referred to as a depression.” And I’ve heard others define a depression as simply a recession last 2 or more years.

But perhaps the best definitions of a recession versus a depression come down to this–a recession is when it hurts; a depression is when it hurts real bad.

When will the recession end?

Since 1948 there have been ten periods (not including the current one) of negative economic growth over two fiscal quarter or more:

Recession Duration

1948-1949

12 months

1953-1954

11 months

1957-1958

9 months

1960-1961

11 months

1969-1970

12 months

1973-1975

17 months

1980

7 months

1981-1982

17 months

1990-1991

9 months

2001

9 months

2007-?

12 months and counting

 

As you can see from the table, the longest recession has been 17 months, occurring twice. If the current recession lasts as long, we have three months to go. But that’s a big “if.”

There are several reasons some argue this recession will last longer. From 1991 to 2000, the U.S. enjoyed the longest period of economic expansion on record. Add to that the U.S. debt, loss of manufacturing jobs, a horrible real estate market, and an unprecedented credit crisis, and there you have the arguments for a longer recession bordering even on a depression.

in contrast, others point to the historically low interest rates (compare to 1981′s double-digit rates), and low inflation. Add in the stimulus package, and they believe we’ll come out of the recession this year.

While to me the stimulus bill reflects the government’s inability to control spending, it will stimulate the economy in the short term. The fact is that if history is any guide, we are nearing the end of this recession. I’m not one to make predictions, but if there is any good news here, it’s that we have already weathered 14 months of this economic storm. If the credit crunch improves and real estate prices stabilize, I would expect the recession to end in the next three to six months.

But I’m no expert. Speaking of experts, here’s what they have to say on the subject.

The Fed uses the spread between the 10-year treasuries and 3-month treasures to predict future economic activity over the next 12 months. Using this model, the Fed has accurately predicted the last seven recessions dating back to 1960. So what does their crystal ball say now? The recession will end mid-2009. You can read the details here.

Not everybody is so sanguine, however. Nouriel Roubini (Chariman of RGE Monitor), aka “Dr. Doom,” predicts a two year recession:

The U.S. recession will last two full years, with gross domestic product falling a cumulative 5%, said Nouriel Roubini, … For 2009, Roubini predicts GDP will fall 3.4%, with declines in every quarter of the year. The unemployment rate should peak at about 9% in early 2010.

All of this reminds me of a description of economists I once heard that seems very accurate. An economist is like a person standing next to a pool who, as you’re about to jump in whispers, “There’s no water in the pool.” After you land with a thud, the person with a grin on their face shouts at the top of their lungs, “I told you there was no water in the pool!”

Published or Updated: April 16, 2014
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. I hope history comes through again and this whole thing begins to stabilize in the next three to six months. I don’t know, though, I wonder if factors that weren’t present in previous recessionary times are going to hurt us this time around. I sure hope not.

  2. Craig says:

    A lot of so called experts say around the summer. They keep saying things will get worse before better, and they have. Granted that might just be a way to save their owns butts. It has been going on for some time but with changes being made, you would think that a few months down the road we should start to see things get progressively better.

  3. I sure hope we come out of this soon, but I would say that some areas of the country will be hit harder compared to NYC or large metropolitan cities. States that have large exposure to car manufacturing appear to be hit hard with this recession and may take longer to emerge. It would be wonderful to see new growth opportunities in hybrid vehicles or green solar to offset these job loses and bring us back to growth again.

  4. Chiko777 says:

    I think the recession will end when people change their mindset about the economy. Most of the recession is mental. If people in America get together as a whole and work towards a better future instead of pointing out each others wrongs, then we will only be about 3 months away from the end of the recession.

  5. Amber says:

    Are you high? This is the lamest economic article I’ve read all year. The recession is no where near ending. It won’t be close until at least 2011 or 2012. All you need to know to see that is the number of Alt-A and Option ARM resets which are coming in 2010 and 2011. Until all the morons who bought more house than they could afford are booted from their fantasy island, the recession won’t be over.

    Oh, and the “credit crunch” is a myth. If you have good credit, a job and little debt, you can get all the financing you want. Look at the TED spread. Banks are lending to each other now, and they’re lending to CREDIT WORTHY consumers. So people who have H2 Hummers on a lease and only make $40k a year in Southern California can’t get home financing. Whah. That’s the way it should be.

  6. Monevator says:

    I agree with Amber that to some extent – from a consumer perspective the Credit Crunch is now a return to sensible lending. The actual credit crunch though is banks and others not lending to each other (albeit again because they mutually realised that none of their fellows were wearing any pants).

    Total guess: With all the money coming into the economy I think we’ll get a technical end to the recession within 6-12 months, but the price will be shallow stop-start growth for a years. But nobody really knows of course. Best to plan as if you don’t.

  7. Financial and economic factors led us into a recession but the media and its over the top, jaded and sometimes purely false reporting are responsible for its depth.

  8. DR says:

    This article was featured in the carnival of personal finance: http://www.freemoneyfinance.com/2009/03/carnival-of-personal-finance.html

  9. illi says:

    I feel that recession is still going to reduce by 2009 end .

  10. blu gress says:

    This recession has been the worst one since 1929!! The BS.this goverment has dished out to the public is a poor excuse,to all of us.With taxes going up,the
    unemployment sky high,and the housing at a all time high for forecloser,What does OBAMA think?First we have the asshole GW Bush,he was bad enough
    putting us into debt and war.But shit the president we have now,we our all in
    deeper trouble then we have ever been before!!OBAMA said CHANGE.Well
    guess what,we OUT him by 2012,or we will never see the light of day.it’s all very
    scary,what kind of futue do we have????War and nothing!!

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