Should We Call It ‘Depression 2.0′?

Recently revised data show that the recovery from the 2008 Crisis is taking longer than expected. You may recall that a “recession” is the period when GDP is declining. Once GDP troughs and begins to climb, we call that phase “recovery”. Recovery gives way to “expansion” when GDP surpasses the old peak. We detailed this graphically in a prior post.

Quarterly GDP numbers are released by the BEA as “advanced”, “revised” and “final”. Each successive print is more accurate than the last as data is collected, corrected and needs less estimating. Every year, the BEA goes back and revises the previous few years too. The latest revision calculates peak-to-trough change in GDP of -5.1%, down significantly from the -4.1% thought before. This is clearly visible in the chart here:

The consequence of this is that while we had thought GDP was now in expansion territory, it clearly is still in recovery phase. With the latest 2Q11 growth coming in (just today actually) at a mere 1.0% rate, we may remain below expansion territory for some time yet. In fact, if the economy does dip back into recession- a very real fear- it may take years to climb into expansion.

By way of comparison, here is a chart of annual GDP during the Great Depression. Notice it took a full 7 years to climb out. With this in mind, should we go out on a limb and just call the current situation Depression 2.0? Or am I getting ahead of ourselves?