According to the official Business Cycle Dating Committee at the National Bureau of Economic Research (NBER), the Great Recession ended in June 2009. The question is, how excited should we get about this? Is there light at the end of the tunnel? Are we almost out of the woods?

My answer is that one should be very cautious about all this. Here’s why.

Fortunately, the NBER is up-front about the context in which its announcement should be read, and like everything, the devil is in the details. Yesterday’s actual announcement, taken from NBER’s site linked above, states:

In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month. A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The trough marks the end of the declining phase and the start of the rising phase of the business cycle. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion.

Fair enough, so far. We’ll have more to say about the part I highlighted in bold at the end of this post. Before we proceed, what are the indicators that NBER looked at to determine whether the economy turned the corner in June of 2009?

The committee designated June as the month of the trough based on several monthly indicators. The trough dates for these indicators are:

Macroeconomic Advisers’ monthly GDP (June)
The Stock-Watson index of monthly GDP (June)
Their index of monthly GDI (July)
An average of their two indexes of monthly GDP and GDI (June)
Real manufacturing and trade sales (June)
Index of Industrial Production (June)
Real personal income less transfers (October)
Aggregate hours of work in the total economy (October)
Payroll survey employment (December)
Household survey employment (December)

… The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007. The basis for this decision was the length and strength of the recovery to date.

The quote above in bold put us on notice that economic activity can be “below” normal even after the expansion begins, sometimes “well into” the expansion. Just how well into the expansion are we, and how far below normal is economic activity, to warrant all these ifs, buts and caveats in NBER’s announcement? Well….the following picture, courtesy of David Rosenberg from “Breakfast with Dave” on 16 September 2010, speaks for itself:

All I have to say is, wow. Not a single indicator has recovered the ground lost 33 months after the start of the recession, in stark contrast with the average situation at the 33-month milestone after all other post-WW II recessions combined, where all indicators were in positive territory! Not your garden variety recession, indeed.

It is not surprising therefore that a recent poll found that 92% of Americans believe the country is still in recession. Given that The Chances of a Double Dip are 50% or more, it is also not surprising that the NBER felt it necessary to pre-emptively talk about a potential future recession in yesterday’s message.

Case closed! At the risk of attracting the perma-bear label, frankly I don’t see what the cause for optimism should be. It was to be expected that we would have some sort of bounce, relatively speaking, after the long vertical drop. Of course we would as the inventory restocking cylinder started firing! But to call that bounce a “recovery”, while the curtain is down between acts one and two of the ongoing debt deleveraging, is an irresponsible use of the “recovery” word, in my humble opinion.