Q: Hi Matt, do you think the recession is over? I’ll be graduating from college this December and then looking for a job. I’m hoping the economy will be better by then. What do you think?
A: In September, 2009, Fed chairman Ben Bernanke mentioned in a speech that the US recession is “very likely over.” But I’m not so sure he’s right. A recession is defined as two consecutive quarters of negative GDP growth. In other words, if our economy shrinks for two consecutive quarters we’re officially in a recession. GDP stands for Gross Domestic Product, and it’s the market value of all final goods and services produced within the US. As of the most recent financial data, we’re yet to see a positive quarter of GDP growth, suggesting we may still be in a recession.
Measuring GDP is just one way to determine if we’re in a recession. The other method is to examine the four economic factors produced by the National Bureau of Economic Research (NBER) and determine if they’re moving in a positive or negative direction. The four factors researched by the NBER are employment, real personal income, industrial production, and retail sales. Unfortunately, two of these four factors (employment and real personal income) are still showing long-term down trends, suggesting Ben Bernanke’s statement that the recession is “very likely over” may not be correct.
Whether or not the recession is over, our economy won’t start to improve until the unemployment rate is reduced. Today the national unemployment rate is almost 10%, which is the highest it’s been in 25 years. It’s largely assumed that we will see a “jobless economic recovery”, meaning the stock market may improve along with industrial production and sales, but 1 out of every 10 Americans may still be unemployed for some time to come. I believe it will be at least 6 months before we see a noticeable decrease in the unemployment rate, so in the meantime it’s best to keep saving, add to your cash reserve, and make sure your insurance is in place an adequate.
Matthew Brandeburg, CFP® has six years of financial planning experience and runs his own business, Bridgeway Financial Group, LLC, based in Columbus, OH.