It’s almost certain now that the recession probably ended sometime this summer, and an expansion is now underway. The Wall Street Journal consensus of more than 50 professional economists is for 3 percent real GDP growth in the third quarter, and a 2.8 percent growth rate in 2010. But if it’s over, a couple of important questions remain: 1) how long will the unemployment rate continue to rise, and 2) when will the National Bureau of Economic Research (NBER) officially declare that the recession has ended? History might help provide answers.
1. The chart above shows the monthly U.S. unemployment rate back to January 1990 (BLS data here), highlighting (in grey) the 1990–1991 and 2001 recessions, and the periods of rising unemployment (in blue) following the last two recessions that were referred to as “jobless recoveries.” After the 1990–1991 recession, unemployment continued to increase for 15 months before it peaked in June 1992 at 7.8 percent; and following the 2001 recession, the jobless rate increased for 19 months until June 2003 when it peaked at 6.3 percent (see blue shaded areas in chart).
Assuming that: a) the most recent recession ended in June 2009, and b) we have another jobless recovery of at least 16 months, we can realistically expect the unemployment rate to continue increasing at least through the end of 2010 before it reaches a “jobless recovery” peak.
2. To understand how long it might take for the NBER to announce that the 2008–2009 recession is officially over, we can also look to the two previous recessions.
The 1990–1991 recession ended in March 1991, but the NBER’s official announcement wasn’t released until December 22, 1992, almost 21 months later. The 2001 recession ended in November of that year, but the official announcement by the NBER didn’t come until July 17, 2003, almost 20 months later.
If the most recent recession ended sometime in the middle of 2009 and if the official “announcement lag” of the last two recessions continues for this one, we probably won’t get the official word from the NBER until February or March of 2011.
Bottom Line: The good news is that we are probably in the early stages of the 12th economic expansion since World War II. The bad news is that it might take until 2011 for the “jobless recovery” to end, and it might also take that long before the NBER makes it official declaration that the recession is over. We should probably be prepared to be patient.