Towson University’s Outreach Blog

Raquel

Do you know what you were doing during June of 2009?  Well, if anything you should have been rejoicing about the official end of the recession!  That’s right ladies and gents, the longest and deepest downturn for the U.S. economy since the Great Depression came to an end 18 months after it began.  I think it’s finally time to break out this t-shirt:

Photo Credit: www.Zazzle.com

Or is it?   Before we explore this new development further, let me give you background on the definition of an economic recession.  The National Bureau of Economic Research’s (NBER) Business Cycle Dating Committee is the body responsible for officially dating the beginning and end of recessions.  The most commonly referenced definition of a recession is two or more quarters of negative GDP growth. However, while some past recessions may have followed this definition, it’s not the only way that the committee determines the official beginning and end.  Here is the definition directly from NBER’s website: recession is a period between a peak and a trough, and an expansion is a period between a trough and a peak. During a recession, a significant decline in economic activity spreads across the economy and can last from a few months to more than a year. Similarly, during an expansion, economic activity rises substantially, spreads across the economy, and usually lasts for several years.

Here’s a visual of a typical business cycle:

Photo Credit: www.Allbusiness.com

When making their decision, the committee examines a range of other indicators such as employment, real income, sales and the Federal Reserve’s index of Industrial Production (IP).  What is important to note here is that the committee only officially announces dates when it has full access to all relevant data and all data revisions have been completed. The committee then looks back and determines in what month the economy reached bottom and began to expand again.  According to the announcement by the NBER in September, they decided that a trough had occurred in June 2009 and while the economy was still weak – with lingering high unemployment – it had expanded considerably from its trough 15 months earlier.

So, that’s the technical definition, but what does it mean for the average individual?  The end of a recession or beginning of an economic recovery is not a tide that lifts all boats, so to speak.  Economic recovery could be stronger in certain industries and slower in others.  Recessionary or diminishing economic activity can still be present even as the overall economy begins to recover.  The real question is how is the economic recovery affecting or not affecting you?  How has your life changed since June 2009?  The answer to this question, in my opinion, is the real gauge of economic prosperity.  And, as you can imagine, is all terribly subjective.  Thus, we can’t put too much significance on announcements of   the end or the beginning of recession.  What we can do, however, is use the information as a point of analysis.