What Is an Economic Recovery? Levels, Changes, and Changes-in-Changes

There’s some debate about whether the economy has begun to recover. The consensus among professional forecasters is that the trough occurred sometime in the second half of 2009. But it doesn’t feel that way — which is why the latest Gallup survey is so interesting. Gallup researchers asked regular people how long until they expect the recovery to begin, and nearly half think we are three years or longer away.

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It’s clear people are pessimistic about the economy. Very pessimistic. (I should quibble that the question is sort of leading; while any response was allowed, negative numbers don’t seem like a natural response.)

But I think there’s something else at play here. There’s a disjunction between how economists use words like “recession” and “recovery,” versus how the general public understand these terms. According to the NBER approach, “A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough.” So the recession has ended and the recovery has begun, but only because things got as bad as they are going to get. The “recovery” that we are in will take us from this low point, through some hard times, and hopefully, eventually, to a brighter place.

By contrast, I suspect that when non-specialists talk about a “recovery,” they are looking for the economy to return to some level of good health — perhaps to “recover” all those lost jobs that have disappeared over recent years. This definitely didn’t occur in the middle of last year, and by this definition, the Gallup respondents may well be too optimistic. It is extremely unlikely that the economy will recover the nearly nine million lost jobs for years to come. Indeed, it’s probably going to take a lot longer than five years before the unemployment rate falls below 4 percent again.

The public, it seems, is interested in the level of the business cycle, and the unemployment rate is a useful metric for this discussion. Yet the language that professional economists use is much more about changes in the state of the cycle. This is why economists talk a lot more about changes in things — growth in non-farm payrolls, or GDP. And right now it’s even more confusing, because commentators have been focused on the diminishing rate at which the economy is shedding jobs. That is, the wonks right now are talking about a rate of change of a rate of change.


JF

How could Gallup not have offered "A recovery is already underway" as an option? Certainly there are folks -- I'm not among them -- who believe we're already in recovery, and for Gallup not to have offered that possibility to those answering the question seems like bad polling.

Hunter

I've had to literally sit people down and "draw them a picture" on this topic. Give someone a sine wave and mark the peak and trough "recession starts" and "recovery starts." Then mark the inflection points (where the wave crosses the horizontal access) as "beginning of the end of the recession" and "beginning of the end of the recovery." Then ask him or her to put themselves in the shoes of someone who hires and fires. When do you consider layoffs? When are you on a hiring binge? Most people get the "aha" look around that point.

frankenduf

you have also not discussed response as a function of class- the underclass by definition will not recover, and middle class recovery will only come about with economic infrastructure change, which congress seems unwilling to facilitate- the upper class is already sensing recovery (viz. stock spike and lack of regulation on capital)- so, since the majority of respondants are not upper class, this explains the conclusion that the respondants are likely "too optimistic"

Eric M. Jones

Okay, let's talk turkey.

The economy is basically psychological. Yes, there are necessities needed to survive, but if people only purchased, consumed and worked only to survive, our economy would be in the stone age.

The big-money institutions have shown themselves to be untrustworthy, the government is not worth of our faith and trust, and the dollar is barely worth the paper it's printed on. The successful people are often cheats and theives and if you are rich, the law simply doesn't apply to you.

So, what to do...what to do...? Well, it is up to the people and their "representatives" to craft decent laws and then enforce those law.

But don't hold your breath.

incredulous

" Then mark the inflection points (where the wave crosses the horizontal access) as "beginning of the end of the recession" and "beginning of the end of the recovery."

I do not understand the use of the word 'access' here.

John

Eric, if you think the dollar is worth so little, I'll be happy to take yours off your hands for 1/10 their face value in gold or whatever good you desire.

Nosybear

Recovery, to this non-economist, means things are getting better for me. Instead I'm paying more for food and fuel, items not included in the CPI, my pay is stable or falling over time or I'm losing my job, my health care.... The economy to the non-economist is not numbers or indicators but the harsh reality that the US economy seems to have reset itself to a lower level for individuals and the reset is on-going. I have more month left at the end of the money. The things I have to have cost more. My income is not rising, nor is it certain. That's the difference between recovery to an economist and recovery to a consumer.

B Whitney

they left "never" out of the survey

Lord

If you are asking people, you should expect answers meaningful to them, which most likely is when jobs recover, and probably not just when they start recovering, but when they are recovering enough to create more jobs than workforce growth (which has been when job growth exceeds 150k a month). Asking questions about which they don't know and don't care is stupid.

Steve

How about never.

Of course, I'm talking about a real recovery, not just the stock market up and the Wall Street criminals again getting obscene bonuses.

I expect that without real investment becoming the only way to make money, a middle class that is mostly successfully educated and a major downsizing of American's entitlement compex, there will be an inexorable slide over the next 25 years to about the level of Greece.

Brad

Once the wheeze turns into a productive cough, then you're recovering. Once the productive cough is gone, you're recovered and you can expect to have the sniffles shortly.

Christopher Strom

I love it when pollsters ask random people about the "economy". I agree with most of the responses so far, and as I can see, they amount to this:

Members of the general public barely know what is meant by "the economy". This is probably because for any individual, her unemployment rate is either 100% or 0%. And her hopes or fears for her future economic well-being are given largely by the news media to which she chooses to listen.

Jim

At least this poll asked when the economy would "START" to recover.
Other polls or anecdotal comments I run into ask, or rather "proclaim" that the economy WILL RECOVER in "X" years or something.

But recover to what level? Another bubble?
We have been in a hugely inflated bubble for several years, is that the standard to which we measure recovery?

If there was an agreed upon metric for defining a "normal" functioning economy we could possibly answer the question with a bit more accuracy. But people have been led to believe the last several years were "normal", what if where we are NOW is what "normal" should be?
If you go out clubbing for a few days in a row and staying high the entire time and then eventually fall asleep and wake up, what is "normal"? Do you think to yourself, "gee I wonder how long until I can get back to that Club and get high again?", or is your life "back to normal"?
For some people, living at a nightclub and being high all the time is "normal" I guess, but for the rest of the population...no.

Read more...

Mark S.

"Members of the general public barely know what is meant by "the economy". This is probably because for any individual, her unemployment rate is either 100% or 0%...."

I think you are on to something. Maybe it would be better to limit the survey responses to people whose income depends directly on customer traffic and tips such as restaurants, hairdressers, taxi drivers etc. Its probably a concurrent or lagging indicator though.
Are there any variable income jobs that could be leading indicators ?

mfeezy

How amazingly different would the results have been if the options were something like this:
Less than 1 month
2-3 months
4-6 months
6-9 months
9-12 months
One year or more
No opinion

Do you really think 85% of respondants would have chosen the extreme as they did when asked as they did in the actual survey? Doubtful. If you lead them, they will follow...

CrisisMaven

Rightly observed, negative answers were not allowed which excludes people like me who'd think things will get A LOT worse.
Also a majority of people in interviews tend not to deviate too much from what they believe is an accepted worldview.

Frederick Michael

While, in retrospect, a recovery is dated from the bottom of the trough, it isn't officially a recovery until the GDP passes the old high before the beginning of the downturn.

This is why Clinton was elected in a recession but by the following spring, we were already in the 3rd year of a recovery.

However, since the survey said, "starts to recover," there shouldn't be any confusion over when the recovery begins vs. when the upturn become a recovery.

Ray Tomes

There is recovery and real recovery. A few quarters of uptrend is easy enough to happen without any effort - it is just the pendulum swinging. But the structure is still broken. The upturn that we are in will be weak and soon enter another big downturn. The USA has lived beyond its means for far too long and will have to pay for it with much reduced standard of living.

Study cycles to get a better perspective.

Mike

I would take a look at manufacturing to figure that out... particularly primary metal production. That really seems like it will be able to show you the when the economy is picking back up and business is good. Of course, that doesn't predict anything!

I'd take a look at this profile of the metal manufacturing industry:

http://www.researchmob.com/research_mob/industry?industry=6

It is shocking to see that in 2009 US production of primary metal fell 40% from 2008. You really don't hear about that in the news. It is funny how that basic economic info is just covered over with tax credits, companies dipping into savings, job cuts, etc.

Banty

There is a difference between "recovery" and "recovered".

Think recovery from a surgery.

This isn't hard.

But I think there has been some deliberate obfuscation about the economic recovery (vs. when it's recovered), on both sides of the political spectrum.