The Week in Review: April 26, 2021
Recession and Recovery
The National Bureau of Economic Research (NBER) is not a household name. Outside of economists, few are familiar with the group. Its importance: The 101-year-old organization is considered to be the official arbiter of recessions and economic expansions.
Few were surprised when the NBER declared on June 8, 2020, that the prior economic cycle peaked in February and a recession had begun.
Most indicators strongly suggest the economy hit a top in February, as lockdowns that began in March quickly sent the economy into a tailspin.
How does the NBER define a recession? “A recession is a significant decline in economic activity spread across the economy, normally visible in production, employment, and other indicators. A recession begins when the economy reaches a peak of economic activity and ends when the economy reaches its trough.”
While the NBER was quick to mark the start of the recession, it has been noticeably absent from pronouncing that the recession has ended.
Please revisit the NBER’s definition. A recession doesn’t end when activity gets back to the prior peak. “A recession … ends when the economy reaches its trough.”
Employment, consumer spending, and industrial production declined in March and fell sharply in April, according to data from the St. Louis Federal Reserve. But the key indicators rebounded in May and continued to improve in June.
Employment and industrial production, along with several other economic reports, have since added to gains, while consumer spending topped its pre-pandemic high in January.
We’ve also seen gross domestic product (GDP), which is the largest measure of the value of goods and services, expand in the third and fourth quarters of last year. Expect GDP to accelerate in Q1 vs. Q4’s annualized pace of 4.3%, according to Briefing.com’s survey of economists.
Officially, the Recession Drags On
When the NBER declares the recession is over, it will probably backdate its announcement as it has done in the past.
If it marks April as the bottom, the three-month recession will be the shortest on record, followed by the six-month 1980 recession and the seven-month recession that coincided with the 1918 Spanish flu pandemic. Records date back to 1854.
While we can quibble over the NBER’s lack of transparency, the economic data have been favorable and suggest we’re well along the road of recovery.
If you have any questions or concerns, please don’t hesitate to let me know.
Two for the Road
Investors have put more money into stocks in the last five months than the previous 12 years combined. —CNBC, April 9, 2021
Households have entered 2021 armed with boatloads of cash and the cleanest balance sheets they have had in decades. Households finished 2020 with $14.1 trillion combined in checking and savings accounts, compared with $11.4 trillion in 2019. Their debt-service burden—the percentage of after-tax income used to pay off debt—fell to its lowest level in records going back to the early 1980s. —The Wall Street Journal, March 21, 2021
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