'Recession over' headlines are lazy and ignore the reality of most Australians

One weird thing about recessions is that everyone wants to be the first to claim we are in one, and then also the first to claim we are out of it. But unfortunately, despite some reporting that the Reserve Bank is saying we are no longer in a recession, the reality is we are still very much in one, and it remains very deep.

It is amazing how people cling to things that are clearly inadequate or wrong, just because they are easy.

Many journalists, ever hesitant to deal with the complexities of the economy and explain the vast array of numbers and figures, have for many years now clung with grim determination to the belief that a recession means two consecutive quarters of negative growth.

Related: Australia's services exports have been smashed – and that's not good for jobs | Greg Jericho

As a result, when the deputy governor of the Reserve Bank, Guy Debelle, suggested to the Senate economic estimates committee on Tuesday that the bank’s “best guess is it looks like the September quarter for the country recorded positive growth rather than slightly negative”, journalists around the country added one and one together and came up with 11.

If Australia’s GDP increases in the September quarter, then clearly that is no longer two consecutive quarters of negative growth, and huzzah!, we’re “no longer in a recession”.

And so we had headlines such as the AFR’s “The recession is over: RBA”, and the Australian’s “Recession may be over: Reserve Bank”.

Except the deputy governor said nothing about the recession being over. He merely indicated that the bank expects GDP to increase in the September quarter, which to be honest is hardly a shock given the June quarter fell 7%.

Remember, growth is relative to the previous quarter, so if economic growth in the September quarter was smaller than what was achieved in the months of April, May and June, when most of the country was in lockdown, then we would be seriously stuffed.

But consider that if we achieve say 0.5% growth in the September quarter (we won’t find out till December) our economy in those three months will still be some 6.3% smaller than what it was a year earlier:

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That, my friends, is still a recession.

But we don’t need to cling to the old line about consecutive GDP growth to measure a recession. Not only is it far too broad a measure, and ignores how growth is achieved, it is also far too slow.

We don’t need to wait till December to find out what was happening in September, we already have a very good indicator – the monthly labour force figures.

Ask yourself what really matters in a recession. Is it net exports that might enable overall GDP growth to be positive, or increased government investment spending that overcomes declines in the private sector?

Such things are so disconnected from day-to-day lives that suggesting they determine a recession is almost to be purposefully dismissive of the experience of most people.

What matters in a recession is unemployment.

It is why (as I have noted before) the US economist Claudia Sahm came up with a recession indicator that ignores GDP and focuses on jobs.

She essentially compares the current unemployment rate with the lowest point it has been in the past 12 months. She argues that anytime the unemployment rate is more than 0.5% points above the lowest point it has been in the past 12 months, the economy is in a recession.

I like the measure, but I prefer to use underutilisation than unemployment because a big issue at the moment is not that people are out of work, but their hours have been severely cut back.

And because the underutilisation rate is generally around 2.5 times the unemployment rate, I have set the recession point at 1.5% above the 12-month minimum.

Using this measure shows we remain in a very deep recession, even if we exclude Victoria:

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What is truly scary is just how bad things are for prime-aged workers aged 25-54:

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And when we break down these workers in the peak earning years by gender, we see that the recession for men is roughly two-thirds worse than was the 1990s recession:

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We also see that while women mostly escaped calamity in the GFC, this time around things are worse than they ever have been.

Now perhaps such measures are too technical, so let me leave with this point – in September there were nearly 600,000 more people either out of a job or wanting to work more hours than there had been in February:

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If your definition of a recession does not think that matters, then your definition is worthless.

We remain in a recession, and the government and the Reserve Bank need to continue to act as though we are.