AMFI Registered Mutual Fund Distributor | SEBI registered Investment Adviser
FSM LOGO

                    


titl_l_gif
Research
title_r_gif
Share | Email Print more
NBER says US recession ended in June 2009
September 27, 2010

NBER finally calls the end of the US recession which began in December 2007


Author : iFAST Research Team



Untitled Document

Chart 1: conference board us leading indicators

Key Points

  • While NBER is the ultimate authority in US recession dating, information released is less-than-timely
  • Recent recession lasted 18 months (Dec 07 to Jun 09), longest recession since World War II
  • 6-month returns following the end of US recessions were mostly positive
  • Waiting for the NBER’s confirmation is not practical for investors
  • Recovery in leading indicators almost coincided with NBER-defined recession’s end
  • Current indicators consistent with economic growth, “double-dip” unlikely

The National Bureau of Economic Research (NBER) has finally called the end of the US recession which began in December 2007, with June 2009 marking the end of the economic downturn. While the NBER is generally considered the ultimate authority in US recession dating, the information released lacks timeliness. The NBER confirmed December 2007 as the start of the recession only in December 2008, a whole year later. To identify the end of the recession took even longer: NBER’s announcement of the recession’s conclusion comes almost 15 months after the actual end of the downturn!

Longest Recession since World War II

Table 1: US Business Cycles
  Peak

Trough

Contraction (months)

August 1929(III)

March 1933 (I)

43

May 1937(II)

June 1938 (II)

13

February 1945(I)

October 1945 (IV)

8

November 1948(IV)

October 1949 (IV)

11

July 1953(II)

May 1954 (II)

10

August 1957(III)

April 1958 (II)

8

April 1960(II)

February 1961 (I)

10

December 1969(IV)

November 1970 (IV)

11

November 1973(IV)

March 1975 (I)

16

January 1980(I)

July 1980 (III)

6

July 1981(III)

November 1982 (IV)

16

July 1990(III)

March 1991(I)

8

March 2001(I)

November 2001 (IV)

8

December 2007 (IV)

June 2009 (II)

18

Source: NBER

According to the NBER’s Business Cycle Dating Committee, the recent US recession lasted 18 months, making it the longest slowdown since World War II. As shown in Table 1, the last time the US economy contracted for a longer period was from August 1929 to March 1933 - a 43-month long contraction in a period commonly referred to as the “Great Depression”. The length of the 2007-2009 downturn also exceeded the 16-month contractions of 1973-1975 and 1981-1982, both of which were sparked-off by oil shocks.

US market performance following the end of recessions 

As shown in Table 2, the S&P 500 had a positive return over the 6-month period following the end of every recession since 1933, barring the 2001 technology-related economic slump. Following the end of the recent economic downturn, the S&P 500 gained 22.5% from end-June 2009 to end-December 2009, a stronger return than the 14.6% average return over 6 months following the end of recessions. S&P 500 returns over 12 and 18 months after the end of a recession have generally been positive.

Table 2: S&P 500 returns following end of US recessions

Recession Ended

S&P 500 returns following end of recession

 

6 months

12 months

18 months

Mar-33

65.0%

83.1%

53.0%

Jun-38

10.1%

-0.5%

7.6%

Oct-45

12.4%

-11.7%

-13.0%

Oct-49

12.0%

22.3%

36.9%

May-54

18.4%

29.7%

56.4%

Apr-58

16.1%

33.4%

28.9%

Feb-61

6.7%

10.6%

-5.8%

Nov-70

14.3%

3.6%

25.9%

Mar-75

3.4%

23.4%

29.4%

Jul-80

7.8%

5.6%

-5.2%

Nov-82

18.7%

20.7%

10.5%

Mar-91

2.8%

8.6%

12.5%

Nov-01

-6.3%

-18.1%

-18.1%

Jun-09

22.5%

17.1%

-

Average

14.6%

16.3%

16.9%

Source: Source: Bloomberg, iFAST compilations; returns in USD terms

Awaiting confirmation from the NBER not a practical approach

With a 15-month delay following the actual end of the recession to the NBER’s announcement, investors will find that awaiting confirmation from the NBER is not a practical approach. Rather, we place particular importance on the use of leading indicators as a more timely form of analysing economic conditions. The Conference Board US Leading Index is an often-cited compilation of ten economic indicators which include average weekly hours, initial jobless claims, new orders, and building permits. The US leading indicator index (year-on-year) spiked into positive territory in July 2009 (see Chart 1), almost coinciding with the NBER-defined end of the recent recession.

The latest leading indicator reading shows a 7.1% year-on-year increase for July 2010, a healthy reading more consistent with economic growth rather than the much-touted “double-dip” scenario. Current strong readings on the leading indicator index may be attributed to the low-base effect of 2009, and we expect the measure to stabilise at a more moderate pace over the next few quarters, consistent with the moderate pace of US economic growth which we expect.

 


iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's offer document/scheme additional information/scheme information document. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer in the website.

 


Comments (0) | Comment on this Article
 (Click on Comments/Comment on this Article to show or hide comments/post a comment)
USEFUL LINKS
Recommended Funds
Recommended Portfolios
Chart Centre
Risk Profiler