Like a lot of other bleacher bums, I’ve been straining hard to hear her dulcet tones.
So far, she’s been quiet.
That corpulent gal we’ve all been dying to hear has yet to step to the mike. Until she lets loose a tune, no one is ready to definitively declare the recession is done.
All the signs are there.
The Dow has peeked over 11,000. Jobs have started to move from a pure negative to something approaching neutral. Reports are showing that the economy grew 5.7 percent during the last quarter of 2009.
The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), a group of academics that officially decides the beginning and end of recessions, is saying, not so fast. They aren’t ready to say the recession has come to an end.
These are the same guys who finally concluded in early 2009 that the recession actually had begun in December 2007. In that statement, they also reported that the Titanic had hit an iceberg and that the Yankees had won the World Series … again.
Maybe it’s a good thing the NBER is cautious. If these folks announce the recession is over, and then the economy posts more job losses or slides back into a slump, the early call could be embarrassing, and potentially demoralizing to investors and consumers alike.
Historically, the NBER always is slow to report the good news or the bad. Most analysts believe that the group won’t issue its proclamation until job growth becomes a consistent feature of the economy.
Although they are supposed to be an unaligned cadre of economists, the NBER is not above politics. One member of the eight-person Business Cycle Dating Committee (BCDC) is Jeffrey Frankel. He worked as an adviser to Treasury Secretary Tim Geithner and served on former President Clinton’s Council of Economic Advisers. Another BCDC member, Martin Feldstein, a Republican, headed Ronald Reagan’s Council of Economic Advisers.
How It Plays Politically
Calling the end of the recession has broad political implications, especially in an election year.
Republicans aching to regain their political toehold would like nothing more than to continue saddling their Democratic rivals with a moribund economy. President Obama and his Democratic cohorts are busting to hoist the “Mission Accomplished” banner. While the Republicans may have a slight edge in the war of words, neither is likely to get what it needs from the NBER.
In a presentation before the National Economists Club last Thursday, BCDC member Robert Gordon, who teaches at Northwestern University in Chicago, said he believes June will mark the bottom of the trough. Gordon cautioned, however, that the jobless recovery will likely persist for at least another nine months because in spite of productivity increases, tight credit will limit the ability of businesses to expand their payrolls.
Attaching a Strategy
While the NBER ponders the timing of its announcement, investors have turned their eyes toward Wall Street and the profit reports that will start to trickle out. The majority of market-watchers believe the numbers will look good.
It’s not simply a matter of improving business prospects. Rather, it’s a comparison to where we’ve been. The economy was so bad last year that it won’t take much for companies to post better numbers.
Last year’s recovery in earnings came from drastic cost-cutting. By shearing away expenses, particularly labor costs, companies were able to generate profits on far less revenue than before the recession began in late 2007. Now the question is whether there has been an upswing in company sales to match their leaner profile.
Either way, the NBER is keeping its power dry. It’s not prepared just yet to let the fat lady bellow her refrain.
On a positive note, at least it’s not as complicated as healthcare. John Cohn is a senior partner in the Globe West Financial Group based in West Los Angeles. He may be contacted at www.globewestfinancial.com
