By Michael S. Miller, Associate Professor of Economics – Public reactions of disbelief to stories that the Great Recession is officially over illustrate a glaring disconnect between academic definitions and the views of Main Street America. Who is right?
To academics, the recession ended more than a year ago, yet to the public the recession lingers with no clear end in sight. Taken separately and evaluated solely on the criteria chosen by academics and the public, both are correct. Let’s consider this disconnect.
Economists describe a recession in terms of aggregate production, defined by the National Bureau of Economic Research
as “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.” In July 2009 the level of production began to rise, a trend continuing unabated to this day. Thus, the Great Recession, the longest (18 months) and deepest (decline in GDP of 4.1%) recession since the Great Depression of the 1930s, was declared over by the NBER as of June 2009. We have now entered the expansion phase of a new cycle.
The public’s rejection of the NBER’s declaration is easily explained by focusing on the variable that captures the pain experienced by households in a recession: unemployment. Although the current unemployment rate of 9.8% is down from a high of 10.1% recorded in October 2009, unemployment is higher now than any time in the past 70 years, save for 1982-83. As recently as early 2007, unemployment was only 4.4%. Seventeen months after the official trough of the recession, we have more than twice the unemployment of the pre-recession period, with little improvement in sight. This has led the public to conclude that an economy that cannot generate falling unemployment is an economy in recession.
The public’s reaction is visceral and understandable. Unlike macroeconomic variables that measure activity irrelevant to the average person, the rate of unemployment computed by the Department of Labor is so human, so personal, that it can easily dominate one’s evaluation of economic conditions. Such a narrow assessment, while not economically nuanced, is reasonable to say the least. If many able-bodied Americans have no job, and little prospect of finding one, the public cannot but conclude that the economy is in recession.
Is the recession over? Yes. Is the economic pain over? Not by a long shot. Michael S. Miller is Associate Professor in the Department of Economics at DePaul University.