Recoveries From Severe Recessions Really Can Be Different

Tuesday, April 03, 2012 09:53
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Recoveries From Severe Recessions Really Can Be Different

Tags: economic indicators | economy | investing

Contrary to many analysts thinking, recoveries from severe recessions may not follow the normal pattern of cyclical ones. Economists at the Federal Reserve claim that recoveries are recoveries and tend to follow the same pattern regardless of severity of the preceding recession.

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Multiple other analysts, however, point to the fact that the current recovery is five years old and that the unemployment rate has risen from 4.4% in the summer of 2007 to the current rate of 8.3%. It takes longer for housing prices and unemployment rates to bottom out after a severe crisis and the bottom is significantly lower.
 
Normal recessions are usually followed by a two-year recovery and a return to market trends. Since World War II, however, it usually takes GDP numbers four and a half years to reach pre-systemic crisis levels. Multiple indicators should be compared to pre-crisis levels to accurately assess the state of recovery. The good news is that recoveries from severe crises tend to be every bit as strong as those following a normal recession. Understanding when a severe recession has truly hit bottom is the key to understanding if a recovery is for real or simply a pause in a deeper move downward.

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