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The Recession is A Year Old

Posted by: Michael Mandel on December 01

Yes, we have been in a recession for a year—even though real GDP is up. The current downturn began in December 2007, according to the National Bureau of Economic Research. The Cambridge-based organization, which traditionally provides the beginning and ending dates of recessions, just announced that:

…a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.

I’ve been pretty sure for a while that the recession started in late 2007. Back in March 2008, I predicted on this blog that the official start date of the recession was going to turn out to be November, 2007.

It was pretty clear to me at that point that real GDP—the usual measure of the economy’s output—was giving misleading signals. In fact, even today, real GDP is at its highest level in history, higher than it was at the end of 2007 when the NBER dates the start of the recession (the NBER acknowledges this in their announcement, calling the movements of real GDP “ambiguous”).

Why is this? According to the official statistics, the increase in real GDP was mainly generated by an apparent gain in net exports—that is, a huge shrinkage in the real trade deficit.

In the end, this gain in net exports since the end of 2007 is going to turn out to be mainly imaginary. Supposedly our exports were growing even as the U.S. lost 500,000 manufacturing jobs. In theory that’s possible, in practice it’s very unlikely.

We will look back on this period as a time when globalization outran the ability of the economic statistics to keep track (see, for example, the story I wrote last year titled “The Real Cost of Offshoring”). Part of the reason why we are in this mess is that GDP and productivity growth looked reassuringly high in most of this decade. That helped convince banks to keep lending—even as real wages were falling—and reassured the Fed that everything was okay.

For the foreseeable future, globalization will distort real GDP growth so much that it is no longer a reliable guide for policy. If it feels like a bad slump, it is—even if GDP says differently.

Added: Does the date of the recession start tell us anything about the length of the recession, or the strength of the recovery? In a word, no. The two longest recessions in the post-war era were both 16 months ( 11/73-3/75, and 7/81-11/82). By this yardstick, we are almost done, since we are 12 months into the downturn.

But past performance is not a good indicator. In both cases, the recovery was driven by an increase in housing investment. That’s not going to happen this time. On the other hand, assuming that Obama gets his stimulus plan passed, government spending is going to be a much bigger contributor to this recovery than it was in 1975-76 or in 1982-83.

To me, that suggests a long-lasting recession—say, to the end of 2009—followed by a V-shaped recovery. But I’ll have more to say about that.

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Reader Comments


December 1, 2008 01:52 PM

Thank you for telling us what everyone in the middle and lower class already knew.

Tom E.

December 1, 2008 02:57 PM

Free trade fanatics still think nothing is wrong, just a little creative destruction. Meanwhile, China is making moves to devalue its currency against the dollar.


December 1, 2008 03:32 PM

Good article in general. But the following statement was very weak. Do we or do we not believe the numbers?

"In the end, this gain in net exports since the end of 2007 is going to turn out to be mainly imaginary. Supposedly our exports were growing even as the U.S. lost 500,000 manufacturing jobs. In theory that’s possible, in practice it’s very unlikely."

norman ravitch

December 1, 2008 03:39 PM

Ok, so we have been in a recession for a year. How about telling us when the world-wide depression begins?

Ben in Mia

December 1, 2008 04:18 PM

Once again we are going to be percieved as a bunch of fools. The rest of the world is going to laugh about us.
We pretend to have the best universities, the best economists, the best computers and it takes us a year to find out something everybody knew already.
Or... are we living in denial?


December 1, 2008 04:38 PM

Bush should stand trial for letting the US economy hit rock bottom on his watch.
He didn't lift a finger to try to stop all the illegal things that went down on Wall Street. He never opposed Greenspan or questioned his economic strategy. He just assumed that Greenspan was a financial Einstein.
He put a lot of pressure on Congress to pass the 700billion bailout which hasn't done squat to fix the financial crisis. In fact, it may have made matters worse. The first thing Obama should do on Jan 21st is to arrest Bush before he can leave the country.


December 1, 2008 05:05 PM

It's called Global Depression. I don't know why investors need to wait for reports to come out to freak out and sell. Sell now, get the hell out...6 month gov bonds till the interest rates are significant enough to roll into 10yr treas. bonds.

Don't believe what happens when 4qtr returns come out in Jan...7400 is conservative..if you don't know that then just know your ignorance killed your retirement.


December 1, 2008 05:13 PM

How many Bush-supporters were telling us there was not a recession underway in Dec/Jan of last year? They were idiots then and now they are Palin voters.

Politics and intelligence aside, when is Business Week or some other publication going to own up to the fact that the US has been in stagnant or recessive growth since 2000? REAL wages relative to core inflation, energy/food inflation, dollar devaluation are flat to negative. The "unemployed" are now underemployed in dead end service sector jobs - making the employment rate is a lie. The American worker has been bled to death on every front. Trillions for Wall Street, Billions for War Contractors, but not one red cent for the real economy.

Corey Aist

December 1, 2008 05:48 PM

"that suggests a long-lasting recession—say, to the end of 2009—followed by a V-shaped recovery."

I am not sure - perhaps it suggests a L shaped recession lasting much longer than the end of 2009. Where is the average wage earner going to generate the borrowing to make a V Shaped recovery possible? Anybody?


December 1, 2008 05:53 PM

How can we know what to believe during this political turnover? Of course Obama is trying to blame Bush, and Bush supporters are pointing to the fact that investors don't know what to expect under Obama. I think 2 things are certain: Businessweek is a pro-Obama publication, and I'm not investing until I know what Obama will do. Either way, the media, including Businessweek, will be telling us all about the "Miraculous Recovery" as soon as Obama is elected. We all just need to keep from panicking, wait for the political BS dies down, and hope our politicians don't drive us into socialism.


December 1, 2008 06:21 PM

If the recession is 24 months long, isn't that a U-shaped recession, rather than a V-shaped one?

Why are you optimistic about a V-shaped recovery?

"Sell now, get the hell out...6 month gov bonds till the interest rates are significant enough to roll into 10yr treas. bonds."

This is exactly the kind of talk that signals a bottom.

"The first thing Obama should do on Jan 21st is to arrest Bush before he can leave the country."

This is America, not some left-wing banana republic. Get a clue....


December 1, 2008 07:42 PM

Vindication is never as satisfying as one might wish. I keep asking myself what business would have done differently if the numbers told a truer story, and I'm afraid the answer may be nothing, except for the slim possibility that a few astute types might have seen the U.S. population in a different light. At best, the market might have backed off more gracefully. Even in Washington, it is hard to imagine a legislator saying, "Mr. Greenspan (or Mr. President or Speaker Hastert or ...), the numbers indicate that you don't know what you're doing".

Tom E. not only did China devalue its currency, it moved to support stressed export manufacturers while pouring money into infrastructure. Add to that lower energy prices, and it's really going to make it tough to change anything.

Exports: A recent North Atlantic shipping report named waste paper as the number 1 containerized export, and it appears to be a major Pacific export as well, along with metal and other scrap. Hay was right up there, too. Grain remains a major bulk export out of many ports, depending upon world weather conditions. Meat is a significant export. For some reason, we export natural gas even while importing a great deal of what we use, including that embedded in the fertilizer necessary to produce the grain. The only significant manufactured exports I can find are/were airplanes, while Boeing quietly increases the imported content.


December 1, 2008 08:24 PM

And I've been saying for years that people can't eat macro-economic statistics. And others pointed out that workers were not sharing in the improvements in productivity by getting higher wages. Let's hear from the junior economist at BW.


December 1, 2008 09:48 PM

According to Keynes, the root cause of an economic downturns is an insufficient aggregate demand. When the total demand for goods and services declines, businesses throughout the economy see their sales fall off. Lower sales induce firms to cut back production and to lay off workers. Rising unemployment and declining profits further depress demand, leading to a feedback loop with a very unhappy ending.


December 2, 2008 05:32 AM


Nice piece, you summed it up very well.
The chickens come to roost...

Sadly, I have to agree with Strategery

Joe Cushing

December 2, 2008 08:19 AM


If the middle class knew this last year, why did everyone keep their 401ks invested in stocks? Why wasn't there a major crash in January? Answer: they didn't know.

Mike Mandel

December 2, 2008 08:36 AM

Thomas asks:
"Why are you optimistic about a V-shaped recovery?"

Optimistic is not a word I'd use for myself right now. But as for the V: I think that the immediate problem is the excess $3 trillion in debt. Once we work through that, the U.S. and global economy will quickly spring back to their long-term growth path, as long as the financial system has not been obliterated.


December 2, 2008 11:25 AM

I'm not so optimistic we'll "spring back into our long-term growth path" until the underlying structural causes for U.S. and global economic weakness are addressed. I think it would behoove us to have a real plan to build our manufacturing capacity around something that's actually needed. Once the bones of a healthy economy are in place, the rest should follow.

Oh, nice comment, Lao. The world is in this together, and it would be nice to have a sustainable global plan that works for everyone. I don't think we can do that until we realize that mercantilism really is shaping the current day.


December 2, 2008 03:36 PM

"But as for the V: I think that the immediate problem is the excess $3 trillion in debt. "

So that takes 1 year? Why not much more, or less, time?


December 2, 2008 05:08 PM

So much fanagaling, hocus pocus economics.. How will bailouts save us and not just be temporary life support? When will the economic metric for health stop being how much we consume without any consideration for deficit or trade gaps?
When will we stop depending on China and other foreign entities for almost everything including loans to keep the consumption pump going? There is a lot of expectations for recovery but if the answer is more hocus pocus.. ? I would like to see real jobs, real innovation and stronger more united America.


December 3, 2008 01:25 AM


The middle class felt it.
Why did most people stay invested in stock with their 401K??

- Some had no choice because of the particular company 401K plan.

- You can feel things are not right and still be financially ignorant, unsophisticated or gullible on the investment side.

- Inertia

- To get decent return in this kind of environment it is a full time job and many people have to work.

- Some people did pull out if they could.


December 4, 2008 08:26 AM

This is Bushes buddys getting thire rewards before he said So-long and good night! With his approval in the toliet and his legace done for, why should he care.


December 10, 2008 06:35 PM

pulling out of 401k's is a dumb move taxwise

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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