Recession will last until unemployment starts to decline

Christina Romer, chairwoman of the president's Council of Economic Advisers, said Monday that, even if economy would start growing, she thought, economic recession would last until employment starts to pick up. As she said, the recession “won't be over until actually we have the unemployment rate back down to a more normal level, like 5% rather than 9.4%." After a speech she added, that it would take much time for recession being over.

According to Romer’s "hope and best guess", economy will stop to decline in the third quarter and then starts to expand in the fourth quarter. This point of view is shared by many private-sector economists, which are encouraged by economic indicators improvement.

Disagreement began during discussion on the shape of the recovery.  

S&P 500 movements (the stock market's 40% rise from its March lows) indicate that the economy rebounding sharply, which is known as a V-shaped recovery. But plenty of forecasters consider recovery will probably be "U" or even an "L"-shaped, that is bumpier, due to problems in the housing market and tighter access to credit.

"The pathology of the current episode could produce a mediocre or muted recovery because of concerns that the banks are not in a strong position to lend and/or the customers are not eager to re-leverage," said Credit Suisse economists led by Neal Soss in a report last week.

Many expects unemployment rates staying high output starts to expand. 

Romer said that as "as an economic historian," she notes deep recessions tend to be followed by pretty big rebounds. "We could have a V-shaped," she said. "That would be the normal pattern.” But she added that the U.S. consumer undergo a huge drop in home wealth and ability to borrow, that could set break the pattern.

According to the National Bureau of Economic Research current recession started in December 2007.It taking into account not only falling of GDP during 2 straight quarters, but additionally it considers employment, incomes, industrial output and sales to gauge turns in the business cycle. According to NBER it is too early to say economic recession is over.

Romer offers to do the health-care reform. As she says lowing the annual growth in health care by 1.5 percentage points would increase real GDP by over 2% in 2020 and nearly 8% in 2030.