Monday, August 10, 2009

Oh where oh where has my little growth gone?

By Steve Matthews

Aug. 10 (Bloomberg) -- Declaring the U.S. recession over may take more than a year because of the risk that recent signs of stabilization will prove short-lived, according to the head of the group charged with making the call.

“We are serious about being sure that the apparent upturn is not just a part of a longer decline,” Robert Hall, who heads the National Bureau of Economic Research’s Business Cycle Dating Committee, said in an interview. The group will “wait for activity to surpass its previous peak,” which may take 18 months or more to determine, he said. (As Minyan Peter at Minyanville recently stated, it is going to be a living L. -AM)

Hall’s comments signal he’s less willing than other members of the committee to soon say the recession, which began in December 2007 and is the worst since the 1930s, has ceased. Fellow panel member Jeffrey Frankel last week said the smaller drop in employment and decline in the jobless rate indicated the slump may have ended in July.

“For an exceptionally deep recession, a longer waiting period makes sense,” Hall said. This time around, it is “more important” for the group to adhere to the principle of not calling an end to the recession until after economic growth has surpassed its previous peak, he said.

Declaring the 2001 downturn over was complicated by ongoing job losses, and that may happen again, Hall said. The group took until July 2003 to declare that slump had ended, 20 months after the fact. (And by the way the S&P gain since July 2003? About 2%. -AM)

Complicating a recovery call is the possibility that renewed declines in financial markets or home prices will cause the economy to shrink again, Harvard University economist Martin Feldstein, former head of the NBER and a member of the committee, said in an interview this month.

“There is a risk that we will have a couple good quarters and then suffer a temporary setback at the end of 2009 or start of 2010,” said Feldstein.

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