The Recession Is Over — and It Isn’t



With Wall Street — and the Federal Reserve — in a headlong rush to declare the recession over, the economic data has indicated that the simple binary recession/no recession framework obscures more than it reveals. Yes, defined purely in terms of Gross Domestic Product (GDP), the recession looks to be winding down, with strong indications that GDP is about to turn positive after a long and painful swoon.

But GDP alone is a pretty poor proxy for the lived experience of many millions of people. Wall Street may be booming, the market rising, and many companies reporting strong profits relative to weak global economies. Yet that says little about any one national economy, even one as large and prominent as the United States (see my recent Wall Street Journal piece here).

This week, the Bureau of Labor Statistics reported that productivity soared in the second quarter, up 6.4%. Economists will tell you that productivity is the key to an expanding economy and to keeping inflation in check. But this surge in productivity — which is unequivocally good for corporate profits — comes at the expense of labor. Unit labor costs plunged 5.8% and hours worked were down almost 7%. So even those still gainfully employed are working fewer hours as companies eke out efficiencies, do much more with less, and make money from diverse markets. As of this year, half of the profits of the S&P 500 companies will come from outside the United States. So companies are doing well, in spite of labor and in spite of the U.S. economy. If you depend on a wage and you live in the United States, this recession began before last year and is likely to last much longer. If you’re a company or if you can access the world of capital in some form or another, this recession was a brief, sharp, and very frightening financial panic that is now ending.

Retail sales — not the best of statistics given the frequent revisions and the fact that gasoline sales and auto sales can shape the overall figure and often do — were also anemic in this week’s release. While reports of the death of the American consumer are much overstated, there should be no doubt that some spending will be decreased by the absence of easy credit and by the psychological overhang of the past year.

The larger point, however, is that we no longer exist in “one” economy that can be simply described by a few select figures. The experience of people in different parts of the country and who are exposed to different aspects of economic activity will vary so profoundly that it is impossible to make any sweeping generalization. That won’t stop people from making them, nor will it prevent analysts and politicians from proclaiming the end of the recession as if that statement meant universal relief. The world has become too complicated for such simplicities, and reality will continue to be far messier than the pat statements and neat headlines that seek to contain it.