What the end of recession means in the real world…
Again, the nation’s media and politicians are getting in a kerfuffle over the word ‘recession’. Last time, because we went into it. This time, because we’re out of it.
Yet the news we’re "out of recession" does not mean the economy is buoyant, or we’re back to where we were in the good times – the only thing you can draw from it is that things have stopped getting worse.
Here’s a quick Q&A:
Why are they saying the recession is over?
It’s reported the economy grew 1% over the last quarter. A recession is technically defined as the economy shrinking for two successive quarters (half a year). As we’re no longer shrinking, we’re no longer in recession – it’s that simple.
What’s the real world impact?
Very little. Being in or out of a recession is a reflection of what has happened, not a prediction of what will happen. It’s based on a measurement of past performance. Be wary of media reports that confuse this.
I heard a radio interviewer ask today: "When will real people feel the end of recession?"
Eh? What? A recession isn’t a thing; it’s a measurement of the past. The fact the recession is over doesn’t mean things will get better. It just means they got better in the last quarter.
Now don’t get me wrong, I’m not being a curmudgeon about this – hopefully things will improve, not because we’re "out of recession" but simply because things hopefully will improve.
Why doesn’t the end of recession mean the good times are back?
The best way to think about it is a bit like acceleration and speed when it comes to driving a car. If someone is driving at 50mph and accelerates to 60mph, they have momentum – their speed growth is improving, but they’re still going more slowly than someone driving at a constant 70mph.
And our economy may be moving in the right direction, but it’s still smaller than pre-recession.
Aren’t you being too negative?
This morning I tweeted the following…
"Such a kerfuffle about the end of recession. Literally all it means is things’ve stopped getting worse, not that we’re back to where we were."
While many agreed with me, others accused me of being overly negative, with replies including:
"Cheers Mr doom and gloom. It’s positive news for a change is it not?"
“It’s all about ‘confidence’, so don’t you think someone of your presence in UK culture should be more circumspect?"
I’m not trying to be negative, just honest. I said exactly the same when we went into recession – that was confused too. People then were discussing it as a prediction that things would get worse. But it just meant things had got worse; there was no real impact on what would happen.
On the back of that confusion I actually wrote a blog, Why I confidently predict this recession won’t be as severe as the last (it’s worth looking at to see the fallacy of the technical definition of recession). And this isn’t a new theme; see my older If the economy’s growing, why does it feel so bad? blog too.
In all, what counts here is not whether we’re out of recession, but what is actually happening now and whether or not things will continue to get better. And rather than economic stats, sentiment is crucial.
So in the words of Joey from Friends, "How you doin’?"
