The National Bureau of Economic Research’s Business Cycle Dating Committee takes its time. It wasn’t until December 2008 that the NBER declared firmly the the recent recession began in December 2007. And it wasn’t until September 2010 that the NBER determined officially that the recession ended in June 2009.
Of course, it was obviously long before December 2008 that the nation’s economy had declined precipitously. Pinning the end of the recession was a bit more slippery. With employment still so low and so many measures far below their pre-recession peaks, I’m not sure that the NBER called the end date appropriately.
So don’t look for any official NBER release anytime soon about our current and rather sudden economic slowdown — at a time when we were already moving pretty slowly.
First quarter GDP grew at an annualized rate of 1.8%, which obviously indicates expansion. But that’s a mighty slow pace given the slack in the economy and it’s clear that the odds of a serious stall — or another drop — are higher than we’d like them to be.
Manufacturing ISM Report on Business for May registered 53.5, indicating a 22nd month of expansion (any number above 50 indicates expansion). But this is the first time the index has been below 60 in 2011 and it’s the lowest reading of the last 12 months.
ADP’s May report on private nonfarm employment showed an anemic increase of 38,000 jobs in the country. That’s about 100,000 less than needed to keep up with population growth. The service sector did better than others, but the news was bad for manufacturing and construction:
May’s ADP Report estimates employment in the service-providing sector rose by 48,000, marking 17 consecutive months of employment gains while employment in the goods-producing sector fell 10,000 following six months of increases. Manufacturing employment fell 9,000 in May following seven consecutive monthly gains.
Employment among large businesses, defined as those with 500 or more workers, decreased by 19,000, while employment among medium-size businesses, defined as those with between 50 and 499 workers, increased by 30,000. Employment for small businesses, defined as those with fewer than 50 workers, rose 27,000 in May.*
Employment in the construction industry dropped 8,000 in May, completely reversing April’s increase. The total decrease in construction employment since its peak in January 2007 is 2,124,000.
We’re still about 7 million jobs below the 2007 peak. As noted here by Calculated Risk, GDP has rebounded to pre-recession levels but personal income adjusted for inflation is still below the 2007 level.
So we’ve seen a recovery that is far from complete, and now there are additional signs — many small ones — of bad news. Auto sales have sagged of late, and national home prices are falling. Pending home sales also fell according to the most recent data. Initial weekly claims for unemployment insurance moved lower for a few months but are back up above 400,000. Trucking decreased in April. So did the Architecture Billings Index. Europe remains on the verge of crisis.
David Leonhardt wrote about some of this dreary data last week in the NYT. He wonders — and so do I — why there isn’t more substantive public discussion among policymakers of this slowdown. The Fed seems unlikely to launch a third round of quantitative easing (QE3), even though that’s very likely needed — and i suspect needed right now. With Americans convinced that cutting federal spending is a matter of the greatest urgency — far greater than bringing down the unemployment rate — we’re unlikely to see political leaders make decisions in the best interest of the economy.
So it looks like our national policy — as determined by the voters as much as by the policymakers — is to embrace austerity, even though we know that will lead to public sector layoffs and exacerbate unemployment. And part two of that policy: cross our fingers. We’ll just have to hope that improving supply chain issues related to the Japanese earthquake help boost auto sales and manufacturing. We’ll have to hope that there is some pent-up demand for homes as prices continue to fall. We’ll have to hope that small businesses see growing demand. We’ll have to hope that energy costs continue some of the recent declines.
Policymakers did a terrible job of understanding the housing bubble as it was inflating and of seeing the risks that led to the financial crisis. But I think they’ve done a great job in keeping the economy afloat since then; a major depression was a real threat, whatever that would have looked like in the 21st century. But now we appear to be at another crossroads. The danger is that a year from now the NBER will be talking about May or June 2011 as peaks.