Recession Over? Fed Actions Seem to Reflect So

Industrial production bottomed out last summer, woohoo! Seeing this, the Federal Reserve, it seems, is marking the end of the recession as of the end of the second quarter of last year. Now it thinks it's time to start takng action by tightening lending. The Fed announced it's raising the discount rate (to 0.75% from 0.5%) charged on short-term loans to banks, signaling the beginning of the end of the central bank's extraordinary stimulus measures.

But, the official word proclaiming the end of this lousy, stinking recession doesn't come from the Fed. A recession isn't officially over until the National Bureau of Economic Research (NBER) says it's over, and they're not at the party yet. Why not? Well, industrial production is just one of the variables the NBER takes into account -- and the indicators are at odds.

For the record, the primary indicators the NBER looks at are industrial production, real manufacturing and trade sales, real personal income less transfer payments, and nonfarm payrolls. One indicator is consistent with an economic recovery. The second indicator is not strongly at odds with a recovery, and the two remaining indicators imply that the economy is still in a recession.

If the NBER still places 'particular emphasis' on personal income and employment, it's difficult to confidently conclude that the recession is over. Besides, with real gross domestic product numbers still down more than 3% from its peak, it would be unprecedented for the NBER to declare an end to a recession with these mixed signals.

Apart from the fact that it's of little solace to the unemployed if the recession did indeed end last summer, we probably won't know for sure until next year. How's that? The last two recessions weren't pronounced over by the NBER until more than a year-and-a-half after the fact.

The Fed appeared to try to dampen the impact on the masses by stating: "These changes are intended as a further normalization of the Federal Reserve's lending facilities. The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy." Got that?

Yeah, yeah, we're to close our eyes and just listen to them? Whatever, it is the first upward rate move from the Central Bank since the meltdown. It's not likely to be the last.