This is a response to a recent recommended diary that is implies that the recession is coming to a close. While it may be true that the NBER (National Bureau of Economic Research) may in fact call an end to this recession sometime this year, I will argue that they are using an archaic measuring system for determining recessions and that what most people consider a recession will continue (and likely get worse for some time to come).
First, let’s take a look at those job loss numbers that came out last Friday. First, we must realize that they are very statistically suspect considering the survey size when compared to the much more accurate unemployment rate (which is a separate survey of 60,000 people). We must also add back in the much maligned birth/death adjustment (which is nothing more that statistical illusion) to get a more accurate picture of monthly job losses. This brings us to:
February – (815,000)
March – (766,000)
April – (745,000)
May – (542,000)
June – (652,000)
Birth/death adjustment
So, as you can see, the data are not only still quite abysmal, but they are also not improving al whole lot once we get rid of the birth/death adjustment (which isn’t factored into the still worsening unemployment rate).
The next item I want to address is weekly jobless claims and how that number should be pushed aside, as the applicability of that number as a meaningful statistic went away when we moved away a labor intense manufacturing economy (that saw quick swings in employment) into a more service intensive and manufacturing labor light economy. Thus, the more important number to watch is the unemployment rate and possible the continuing claims number (which jumped by 159,000), which also is much higher because that number is increasing at the same time that people are losing benefits due to time and are dropping out of that statistic.
Finally, I want to argue why the NBER will get the real recession call wrong (of course since they are the sole arbiter of recession they cannot be wrong in fact, but in reality). They will be wrong because they do not consider the unemployment rate highly in their calculations, which is completely off base in our current economic paradigm, as although GDP may tick positive (and my guess is it will be very modest in that uptick), a real recovery (which is to say the end of a recession) cannot take place until the unemployment rate begins to move down (even if slowly). This is unlikely to happen anytime soon due to the difference between U-6 (at 16.5%) and U-3 at (9.5%) because most of U-6 will have to get absorbed into U-3 before the rate can go down and due to the extremely high percentage of part-time workers that will likely have their hours increased before any new hires are taken on. Thus, in our consumer based economy, it is completely wrong to call the end of a recession until the unemployment rate begins to move down, as the consumer is highly dependent on being employed.
In the end, what we need is a much more transparent system for delineating the beginning and end of a recession, as the NBER is using an outdated and inapplicable system that simply is not reflective of our current economic reality.