Consumer confidence is stumbling, the stock market is tumbling, and unemployemnt is soaring. We’re now 14+ months into a severe recession, and the news just seems to keep getting worse. When will it all end? It’s hard to say for certain, but economic experts have made their share of predictions. But before we talk about that, let’s talk a bit about what constitutes a recession.
What is a Recession?
According to Wikipedia, a recession is “a decline in a country’s gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. Some economists prefer a more robust definition of a 1.5% rise in unemployment within 12 months.” Whichever definition you prefer, we’re living it.
Since 1854, we’ve had 32 cycles of economic expansion and contraction, with an average of 38 months per expansion and 17 months per contraction. Since 1980, however, there have only been eight period of negative economic growth that have lasted for one fiscal quarter or longer, and just four of those have been recessions. In the early 1980s, we had a 17 month recession, in the early 1990s we had an nine month recession, in 2001 we had another nine month recession, and now this.
When Will the Recession End?
While there are no concrete answers as to when the current recession will end, a recent survey of leading economists has provided some insight into what we might expect. According to the survey, which was conducted by the National Association of Business Economics, the recession is expected to worsen during the first half of 2009. However, things will start to look up in the second half of 2009, and we should see a solid recovery in 2010.
Are they right? Only time will tell. But it’s worth noting that data from the New York Fed are likewise pointing to an end of the recession sometime during the middle of this year. Keep your fingers crossed.
I think it will end sooner than people in and that we are in the worst of times right now.
The keys to recovery are confidence and time for markets and people to absorb the changes being put in place by governments all over the world. Once business and consumers are confident that things are getting better (or less worse), then they will start lending, borrowing and spending more freely again which will stimulate the local and global economies of the world.
My guess is 24 months and we have been in one about 12 months– so we are about halfway there in my opinion. But remember, in many ways a recession is a state of mind, and if you are a frugal person, it shouldn’t hurt too much– it is the over-extended that feel the pain most.
Neal, nickel said it. Expansions and contractions are a part of the normal economic cycle. There is nothing to suggest that this cycle is any different from any other.
Neal: People asked the same question as we approached the pinnacle of the dot com boom, but the old rules ultimately held and things came crashing back to Earth.
Great post.
The question I ask is, are we in a new paradigm? We could always say that the market will do this or that based on history. But based on what is going on now and the conditions we are in, is that history valuable?
Thomas —
Definitely. Unemployment is just one of the many predictors of a possible oncoming recession. But in no way would I ever use that figure as evidence of a recession….
MLR
it’s GDP, not unemployment. I hate when people try to come up with new ways to spin stuff (ie “core” inflation). As an Econ major, it bugs the crap out of me.
This recession will end soon enough, however the boom will be short lived as more and more of the current policies unfold and take over.
Very few of the “leading economists” even saw any of this mess coming. I put zero stock in what any of them have to say.
If these guys were that good at forecasting they would be incredibly rich relaxing on the beach drinking cuba libres.. 🙂
I agree that media makes things a lot worse than it really is and causes consumer to worry even more hence lowering consumer confidence and making things worse…….I am not a big believer in economists forecast.
Mike, I’m not saying that they shouldn’t report what’s happening, just that they shouldn’t be putting such a “Debbie Downer” spin on every piece of financial news. The facts themselves are bad enough without embellishment.
Does the recession end when the depression begins?
Daniel: if you never go to the doctor, does that mean you’ll never be sick? The media report (loosely) what the news is. The DJIA can indeed reach 0. That outcome has a non-zero probability. It is highly improbable, yes.
How about this for reality check: people began defaulting on mortgages BEFORE the economy turned. On a total dollar volume basis, we have another ‘subprime’ to get through in 2010-11 in the form of Alt-A/OptionARM/NegAm resets and (more importantly) recasts.
In other less-than-stellar news, DollarSavingsDirect cut their APY AGAIN to 2.65% — I gave up and moved my total balance to my rewards checking at 5.01%. Ugh. I’m such a Debbie Downer today . . .
-Mike J
I think it’s pretty clear we’re in a bad situation, but I also think that the portrayal by major media outlets, and the rhetoric of our president (where did the “hope” go??) are really not helping matters.
I really wish the media would quit reporting doom & gloom – maybe that would help with some of the needed reality checks. For example, the DOW can never reach 0, yet some people believe that is possible.