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Tuesday, March 3, 2009

Rebound on the Way... I Mean It... Any Year Now... And It Will Be HUGE

The Council of Economic Advistors via responds to criticism of their "rosy" projections in the Administration's budget for economic growth:

But, a key fact is that recessions are followed by rebounds. Indeed, if periods of lower-than-normal growth were not followed by periods of higher-than-normal growth, the unemployment rate would never return to normal.

Another key fact is that deeper recessions are typically followed by more rapid growth. Table 2 shows the peak-to-trough decline in real GDP in each of the last 10 recessions, along with the average growth rate (at annual rates) in the 8 quarters following each recession.

Interesting, but...
  • This is like saying "if you survive cancer, you will live a great life"
  • How many of these recessions involve systemic financial meltdowns... none you say?
  • After a recession, the economy is smaller... so OF COURSE the economy will bounce back and appear to grow at a higher rate as it trends back to norm (i.e. if the economy goes down 50%, then rallies 100% it is only back to where it started... extreme, but you get the point)
Update: As reader AJK points out:
I'm assuming there's no +8qtrs for the recession ended in 7/80 because it was only 4 quarters until the next recession. Correct?
You are correct: BEA