The longest U.S. recession since the Second World War appears destined to be followed by one of the slowest recoveries.
Academic economists on the committee that dates U.S. business cycles said Monday that the Great Recession ended in June, 2009, 18 months after they said it began in December, 2007.
But an official end date for the downturn served only to remind how little ground the United States has made in digging out of the hole left by the financial crisis.
The assessment of the National Bureau of Economic Research's business cycle committee was preceded by the Paris-based Organization for Economic Co-operation and Development's latest survey of the U.S. economy, which predicted a slow return to strength for its richest member.
Gross domestic product will expand 2.6 per cent this year and next, decent in normal times, but weak compared with previous recoveries, the OECD said. The unemployment rate will average 9.7 per cent in 2010 and 9 per cent in 2011, painfully high for an economy whose monthly jobless rate was never greater than 5 per cent between December, 2005 and December, 2007.
The two reports darken the pall that already hangs heavily over the U.S. economic outlook.
"Employment and output are way below the desirable level and the consensus of forecasters is that it will take a long time to get back to normal," Robert Hall, a Stanford University professor and the chairman of the NBER's business cycle committee, said in an e-mail. "That warrants pessimism, in my mind."
Previously, the longest postwar recessions were in 1973-75 and 1981-82, both of which lasted 16 months. The Great Depression lasted 43 months, beginning in August, 1929, and ending in March, 1933, according to the NBER.
Government reports show U.S. GDP has been expanding for more than a year. Prof. Hall's committee applies a quantitative analysis to determine peaks and troughs in economic output, rather than simply watch changes in quarterly changes in GDP. As it has done on previous occasions, the committee was careful to state that by dating the trough of the previous business cycle, it was not saying that economic conditions since have been favourable.
"The economy is not in good shape," Prof. Hall said.
The American mood about the economy was reflected on CNBC Monday as President Barack Obama participated in a town hall staged by the business channel at a museum in Washington. Questioners ranged from the chief financial officer of a veterans' agency who wanted to know why she and her husband felt like they had to go back to eating "hot dogs and beans" to save enough money to send their two daughters to college, to the hedge fund manager who implored Mr. Obama to stop treating Wall Street like a "pinata."
Mr. Obama mostly defended his record, suggesting his administration has done the best it can with a near impossible situation. The President indicated that he is considering more stimulus programs, saying "we will be working with business to see if it's necessary to come with additional incentives to hire." However, any new initiatives are unlikely to be significant. Mr. Obama emphasized repeatedly that the U.S. must face up to its massive debt-and-deficit problem.
"It bothers me a lot," Mr. Obama said of the deficit, which is more than 10 per cent of GDP. "The first thing you do when you are in a hole is you don't dig it deeper," the President added, defending his stand against extending Bush-era tax cuts for households with annual incomes greater than $250,000 (U.S.). "We have to make sure we are good stewards of our budget."
The deficit is one of the reasons that the U.S. recovery is being held back because it limits what governments can do to spark a faster rebound. Households, which were as guilty as their elected representatives in spending more than earned, may have entered a new era of prudence, the OECD said in its report. The household savings rate is now around 6 per cent compared with 2 per cent before the recession.
This "structural" change ultimately is good, but at the moment is limiting consumption that might otherwise aid the recovery, the OECD said.
As a result, policy makers must be wary of long-term unemployment, which could permanently lift the unemployment rate as millions of people get left behind by the recovery because their skills atrophy. Currently, the long-term unemployment rate of people who have been out of work for more than half a year is 4.5 per cent - far higher than the previous record of 2.5 per cent in the early 1980s, the OECD said.