The Recession Ended in June of 2009 But Owners Disagree

It’s a funny thing when someone tells you that something has come to an end when all of the evidence around you indicates otherwise.  That is exactly what happened in September of this year, when the National Bureau of Economic Research (NBER) determined that the current – or past – U.S. recession that began in December 2007 officially ended in June 2009. The NBER, a nonprofit group composed of leading economists in business, academia and trade unions, are entrusted by the government to determine when recessions begin and end. This past recession, which by the way is the longest recession since World War II, may be ‘officially’ over where the government is concerned – but business owners disagree. Let’s take a look at how exactly the NBER determined that recession had ended and then ask how this can assist you with forming a plan for your future exit.

 

 

The NBER showed that gross domestic product (GDP), gross domestic income (GDI) and industrial production all hit low points during June and July of 2009 and then rebounded somewhat. Employment, hours worked, and personal income didn’t bottom out until later in 2009, but the committee decided to follow established practice and rely mainly on the GDP figures, which track output across the entire economy. Basically, the committee has a very precise definition of what a recession is – a

period when economic output shrinks*.  Since outcome and income stopped contracting in June 2009, this is when they deemed the recession “over”.

 

In total, the NBER has determined that the U.S. economy has experienced 10 recessions from 1946 through 2006. The ‘past’ recession lasted 18 months compared to the 10 previous postwar recessions which ranged in length from 6 months to 16 months, averaging about 10 1/2 months. The severity of a recession is determined in part by its length; perhaps even more important is the magnitude of the decline in economic activity. The 2007-09 recession was the deepest recession in the postwar period; at their lowest points employment fell by 6.1 percent and output fell by 4.1 percent. So, we should be grateful it’s behind us – or so they say**.

 

Obviously, the NBER doesn’t think we are sitting pretty – in their official statement they never claimed that economic conditions since June 2009 have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month. The decision by the NBER means that any future downturn in the economy would be considered a new recession and not a continuation of the recession that began in 2007. The majority of Americans, especially small business owners, feel that they can call it anything they want, they can say its over, they can start a new one if they like– but it won’t change the financial challenges they are still facing, which lead to further delays for the exit plans of millions of small business owners.

 

The U.S. economy continues to stagnate with unemployment at 9.6 percent last month according to the Labor Department. And the forecast isn’t much brighter.  According to a recent report from the Organization for Economic Cooperation and Development in Paris, the U.S.'s unemployment rate isn’t expected to fall to pre-recession levels until at least 2013. That can seem like a long time away – especially if you are a baby boomer who has been considering retirement and a business exit. 

 

The problem is that any business owner who was in the position to consider expansion, and hence add jobs and business value to meet their exit goals, has faced challenges on how they were going to finance that expansion.  This recession may be officially over, but it does not appear that the lending institutions believe it either.

 

Even for those small business owners who can get their hands on capital, there is still the underlying problem of the lingering uncertainty that may be holding them back from growing their businesses to finance their exit.  These business owners have faced challenging times and still have unanswered questions on where the economy is going and how the government will tax both them and their businesses in the future. Many small business owners have taken this economic downturn to cut head counts and have become as lean as possible – it was necessary in order to survive. With that said, owners of these newly lean companies are very hesitant to add staff because they simply don’t have the confidence that they’ll be able to maintain those positions. 

 

Given all of these marketplace realities, what steps can an owner take in this ‘recession’ to continue to advance towards their exit?  Well, given the things in life that one can control and the things that one cannot control, each owner needs to realize that banks, economies, global markets, and stock markets are not under their control.  But, the ability to personally plan for an exit when the economy does recover is under your control. 

 

You alone are the one who will determine how and when you will exit your business.  Therefore, if you choose to be proactive in the development of your business exit, you will be well informed and better prepared regardless of what type of economy the so called experts say that we are in.  Plan for your exit today and make your own definition of your success.

 

^{*John Cassidy, The New Yorker, September 20, 2010}

^{**The National Bureau of Economic Research website}