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Recovery That Feels Like Recession

Jason Stipp

Jason Stipp: I'm Jason Stipp for Morningstar.

The National Bureau of Economic Research recently announced that the recession ended in June 2009. This may sound like a piece of good news, but it may not be especially believable to a lot of folks out there, who are still suffering through an economy that's slow to recover.

Here with me to offer his take on that news is Morningstar's Bob Johnson, director of economic Analysis. Thanks for joining me, Bob.

Robert Johnson: Thanks.

Stipp: So, first question for you. I think the markets received this news in a positive way. What does it mean that they call the end of the recession, technically? What are they looking at, and what can we take away from that just looking purely on a data or an economic perspective?

Johnson: This is an independent group of economists that declares the end of the recession and that turned out in their mind to be June of 2009, and they are pretty clear about what metrics they used, and it really didn't come as a great surprise, many had been using it for sometime.

They look at real incomes, retail sales, industrial production, and employment. And clearly, the employment was the last one to fall in place, and I think they were unwilling, until that showed some clear signs of at least a little improvement, before they declared the end.

Stipp: So obviously, they are looking for some sort of inflection point, so when they do look at all that data, what does that tell us when we look back on it and see they've marked this point, so what does that mean as far as those indicators?

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Johnson: That means that what they declared is the bottom. It means the economy didn't get any worse from there. There's a lot of confusion about what they mean when they say the recession is over. That doesn't mean things are back to normal or everything is hunky-dory. All that it really means is that the economy is not going down anymore.

Stipp: It's not getting any worse. So really that leads me to my second question then because when you look out there and talk to people on the street, they're certainly not feeling like the recession is over. Some of them still think the recession is going on.

How can you explain that disconnect between what people are feeling about the economy and what this ... you know, June 2009, that was awhile ago now. We've been in supposedly the recovery for awhile. How come it doesn't feel like it to people?

Johnson: Yeah, well, I think the recovery is a little slower than some that people may have been used to. I think we've grown about 3% since they declared the end of the recession in terms of real gross domestic product, and in the average recovery that number might be something more like 5%. So, we're a little bit behind the eight-ball, but we're a little bit better than last two recessions, the 1990 and the 2001 recessions. So it is slow, and it's spotty on where and what's recovering.

We clearly see if you are a construction worker or do anything that services a construction industry, you may still actually be going down a little bit. So, that's been a really roughly sector.

If you are young, you are going to tend to have a much higher unemployment rate than you've had in previous recessions.

So, there are certainly areas where people are hurting. People without a college degree, you are close to 20% unemployment. So, those people are really still hurting and that's what really make some people feel like we're in a recession.

And clearly not everything has come back. I mean the stock market has had a nice recovery. We were up 70% off the bottom, but we are still well below the top. So people that are depending on savings for their retirement still don't feel like they are made whole yet.

Stipp: So, looking at some of the economic indicators: How much recovery have we seen in some of the big ones, and how much might we still expect? And should we expect to get back to some of the levels that we saw, or were some of those levels that we saw before the recession sort of unsustainable and sort of silly, unsustainably high?

Johnson: I think there is bunch of different metrics, you could look at, but I mean everybody is worried about employment, and not peak to trough, but from recession days, employment was down over 7 million people, and actually since they declared the end of the recession, we actually lost another 300,000 jobs. But now, we've come back in the last six months, so we are certainly looking a little better on the employment front, but clearly that's one metric that's come back very, very slowly.

Retail sales of stuff you buy in a store is almost normal. It's a pretty typical recovery. Cars, we typically sold 15 million to 17 million units in peak times; we got as low as 9, but now we are back 11-12. I think we've got room to 14, but we certainly haven't come right back to where we were. That's for sure.

And housing starts is another area where I think, we are certainly going to get better, and it's going to get better over time, and we are going to get a lot better from here. But we got as high as 2.2 million starts. We got as low as half a million starts, and we are still not very far off that by the way. But I think our team views 1.2 million, 1.5 million is kind of a normal number, so we got long ways to go on the upside, but we are not going to get all the way back to 2.2 million housing starts that we had.

Stipp: So, it's just possible that things got so high, things got so heated up, that really isn't a realistic number to base your future assumptions on?

Johnson: Correct.

Stipp: But still some room potentially for us to grow, certainly some room for us to get better in some key areas of the economy.

Johnson: Absolutely.

Stipp: Bob, thanks so much for joining me and for your insights.

Johnson: Great, to be here.

Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.