And So It Ends

Story Highlights:

• NBER announced the recession officially ended in June 2009—in line with what many generally assumed—and ruled out a "double dip."
• Because it takes so long to make its official determination, NBER's definition is of more use to market historians than stock market investors.

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On Monday, the National Bureau of Economic Research (NBER) announced the recession is over . . . as of June 2009—in line with what we (and many others) generally assumed. The recession lasted 18 months and claimed the dubious title of longest post-WWII contraction by two months. Though post-war recessions average about 10 months, the more severe downturns were longer. The 1973-1974 and 1981-1982 recessions each lasted 16 months and are the closest comparisons to 2007-2009.

In its announcement, NBER also ruled out the possibility of a technical "double dip." Due to the "length and strength of the recovery to date," they stated any future contraction will be considered a separate, new recession. Of course, another recession on the heels of the last isn't impossible (though in our view, it's unlikely another downturn is immediately around the corner). The shortest post-war expansion after a recession was just a year between the 1980 and 1981 recessions. But the average post-war expansion is 4.8 years. Even longer expansionary eras aren't unheard of either. The 1990s' decade-long expansion is the longest on record. The 1960s and 1980s are the second and third longest at 8.8 and 7.7 years, respectively.

Though folks still argue today is somehow special (i.e., "it's different this time"), we struggle to see evidence of that. The current recovery is happening as they pretty much always do. First, markets rise then GDP turns positive—but lacking "official" guidance no one believes in recovery. Just like today, both the 1991 and 2003 examples were widely hailed "jobless recoveries." (A quick Google News search shows the phrase's popularity spiked after each of the last three recessions.) NBER notes "the unemployment rate lags behind the NBER cycle dates as a general matter … usually [remaining] at high levels after activity reaches a trough." Unemployment continued rising for 15 and 19 months after the 1991 and 2003 recessions ended. This is by no means a new phenomenon. And though unemployment remains elevated, it actually peaked just four months after the most recent recession ended—considerably sooner than the last few recessions. Yet the consensus has a hard time getting past the fact it "feels like a recession." (Feeling like it's a recession when it's not is also not a new phenomenon.)

What else is typical of an early expansion? During the jobless recovery/new normal debate, firms capitalize on productivity gains, profits rise dramatically—and by the time the officials come around, stocks have logged the new bull's first (and perhaps steepest) leg higher. Just what we've been witnessing. Happily, bull markets typically don't end there. The typical recovery and bull market lasts longer than the first burst—well after the economy's official confirmation. And while it's nice to know the recession is officially long over, today's announcement simply confirms what the global stock market has been telling us since March 2009—that expansions are never a smooth, bump-less road, but if you wait for an all-clear confirmation, you may be way, way behind the ball.