An extended period of unemployment will be very bad for a society based on consumption. Consumer spending accounts for two-thirds of the US economy and consumers are a dying species.
I see few signs that we are in recovery. What I see is boredom with gloom. People want the economy to be in recovery, so they find reasons to believe it so.
That's true, we may not be in a recovery but in a restructuring. Restructuring an economy is much more painful then a run of the mill recession.
However if we are indeed restructuring to be less of a consumer nation and more of a manufacturing and export nation again, in the long run that's a good thing.
Or to put it in other words, you can't run both trade and fiscal deficits at the same time for ever. Things would not have gone this far if the US didn't have such a huge fiscal deficit, which allowed China to depress their currency by buying US debt. If it had not been for China buying so much US debt, the dollar would have slowly fallen against the yuan over the years, and the yuan would have slowly risen. And if oil wasn't traded in US dollars, we would have invested more in insulation and alternatives much sooner. Now this is all finally happening and it is painful, but unavoidable.
A very good point that I was going to include in my comment on this article and left out in an effort to stay on my topic about the flaws of the calculation.
To support your point, I think it is more well known after this last year that "recession indicators" are lagging and we are typically in a recession a good 3-6 months before it is declared and the reverse is true for when we get out of it.
Yes. The recession began in late 2007. Unemployment didn't start spiking until mid-2008.
What happens is that companies are not anxious to start laying off employees when the economy goes south, for a variety of reasons. So they start spreading less work among their existing workforce. Worker productivity and hours worked both go down.
This makes these leading indicators. On the other end, when the economy starts winding up at the end of a recession, the now-lean companies aren't anxious to start hiring again. So instead they start giving their existing workforce more work, asking people to work more hours, etc. So you have the opposite: unemployment stays high for a while while productivity and hours spike.
What that means, I'm not qualified to say. And it looks like real economists are (as always) of differing opinions on it. Ideally you'd want to see both of those indicators on the up-tick, but given that one is increasing and the other is not getting worse, it's probably a sign that unemployment is going to start going down here pretty soon.
In fact, GDP continued to grow in Q2 of 2008 (albeit slower) and in Apr. of '08 the Unemployment rate was at 5% (up a mere .1% from Dec. '07).
I was always taught that a recession is 2 quarters of negative GDP growth. Lately that definition has changed to "when economists say the recession began based on rules they made up". The problem with that measuring stick is you are defining behavior based on rules that are supposed to measure behavior. If you've decided the unemployment rate is a lagging factor than you define the Recession as having started earlier so that it fits the rule.
The reality is GDP didn't start to fall until Q3 of '08 and Unemployment had been going up steadily since Apr. of '08 (a full 3 months before the start of Q3). In my book that isn't a lagging sign.
"Two consecutive quarters of negative GDP growth" is just a "rule ... economists made up" too. And a totally arbitrary (albeit seductively simple) one at that. The NBER look at when the economy actually starts slowing down, not when some arbitrary amount of time has passed after the sign on national GDP growth flipped over. It is more complicated, yes, but also more sophisticated and rigorous than the old rule of thumb.
When it comes to indicators, the fact is that the definition of 'recession' is pretty irrelevant. Your rule of thumb is backward-looking and thus pretty much useless for figuring out how the economy is going to move anyway. You can't know the economy is in trouble until it's already been there for two quarters, eh?
Likewise with unemployment, if you ignore the other indicators you won't know something is going wrong until you're already deep into it (and it starts getting reflected in unemployment data). Whereas if you pay attention to leading indicators like productivity, you'll be able to better predict what unemployment is going to do.
6 months sounds great. Since the recession is probably over (most recent GDP change was positive, although the NBER hasn't ruled yet), we should have recruiters kicking our doors down by April or May. And then we'll hire carpenters to replace the doors, and everyone wins.
Unfortunately, I think it's fairer to say that the first derivative of the unemployment rate is what actually lags by 6 months. April or May might be when it starts falling (fingers crossed), but it will have to fall for a couple of years before it reaches its pre-recession level. Every economist or seer I've heard of says it will still be around 9% in late 2010.
And that's six months if we're lucky. Consider the last one: recession ends in November 2001; unemployment doesn't really start dropping until early 2004!
The beginning of this is generally considered to be the Collapse of Lehman brothers and the dissolutions of Bear Stearns and Merril Lynch which all happened in Sept. 2008. The Unemployment rate in Aug. '08 was 6.2% but that was already up from 4.7% in Aug. '07.
So actually it was a predicting factor on the way down.
The collapse of Lehman brothers and Stearns was itself a lagging indicator. The issues had already been pressing all the way back to 2007 (see 'housing bubble'). We had clear signs of a stalling economy well before these companies collapsed. The signal these collapses sent, really, was that this was going to be a deeper recession than we had originally hoped.
I don't claim to understand all of this, but my wife (PhD economics) first started sending me warnings about serious economic issues in late 2007.
Remember in 2008 when we got tax rebates from Bush? Those were to get the economy going, based on the fact that we were entering a recession. It was a big worry. Unemployment at that point was < 5% too. In fact, I bought my house that summer, when housing prices were on the way down, but before the credit crunch made it impossible to get credit. We were already in a recession then, according to the news at the time anyway.
The collapse of LB and BS et al, is something different, those were a big deal panic, associated with, but not the start of, the recession. They were the worsening of it.
The actually interesting thing here is that we were told about the recession we were in for quite a while before the collapses, then we were told how we just got into a recession because of the collapses. Or have we always been at war with eastasia?
http://en.wikipedia.org/wiki/Lagging_indicator