Sunday, April 11, 2010


The Times reports on the NBER's Business Cycle Dating Committee:
A committee of economists, charged with determining the official turning points in the nation’s business cycles, certifies the beginnings and ends of recessions. But this time, the committee members say, the evidence is not so easy to decipher.

The committee plans to announce on Monday that it cannot yet declare an end to the recession that began in December 2007, several members indicated on Sunday. Such an acknowledgment is rare in the history of setting dates to business cycles and could affect the behavior of investors and consumers.

Despite a recent uptick in employment and income, the decision of the committee at a meeting on Friday reflects a lingering worry that the economy could turn downward again in a so-called double-dip recession.

Several economists on the committee, which has seven active members, said they considered such a turn to be unlikely. But, they said, the duration and severity of the contraction have made it hard to determine with authority that a recovery has begun.

Hmmm... sounds more like a Business Cycle Waffling Committee.

The NBER's official definition of recession is rather squishy:

[A] recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.
That leaves quite a bit of room for subjectivity. As an economist, I'd like them to keep the data series as consistent as reasonably possible. A quick comparison with the previous two recessions, which were mild and short, but followed by "jobless recoveries," suggests that the consistent way to call it would be a trough (end of recession) date in mid-2009.

Indeed, FRED (the St. Louis Fed's great data tool that I used to make the graph) provisionally penciled in a trough of July, 2009, which explains the end of the "shaded area."

If things head back down, after at least two consecutive quarters of positive GDP growth (almost certainly three, if the first quarter of 2010 is reported positive as expected), and many other indicators having turned up, then the consistent way to describe it would be as two recessions. That is how the NBER treated the "double dip" of the Jan-July '80 and July '81-Nov '82 recessions. While a new downturn would really mean one prolonged period of economic awfulness, like the early '80s (or the depression, which was two recessions with a recovery in between), calling it as two separate recessions would be in keeping with the NBER's past practice.

Update (4/12): Here is the committee's statement:

The Business Cycle Dating Committee of the National Bureau of Economic Research met at the organization’s headquarters in Cambridge, Massachusetts, on April 8, 2010. The committee reviewed the most recent data for all indicators relevant to the determination of a possible date of the trough in economic activity marking the end of the recession that began in December 2007. The trough date would identify the end of contraction and the beginning of expansion. Although most indicators have turned up, the committee decided that the determination of the trough date on the basis of current data would be premature. Many indicators are quite preliminary at this time and will be revised in coming months. The committee acts only on the basis of actual indicators and does not rely on forecasts in making its determination of the dates of peaks and troughs in economic activity. The committee did review data relating to the date of the peak, previously determined to have occurred in December 2007, marking the onset of the recent recession. The committee reaffirmed that peak date.
Update #2 (4/12): Via Economix, committee member Robert Gordon has offered a "dissenting opinion" (has that ever been done before?). He thinks they should have called the trough for June, 2009. Furthermore, "a double dip is implausible, if it were to occur in the future it would be classified as a new recession rather than a continuation of the 2007-09 recession." Another committee member, Jeff Frankel, declared the recession over on his blog last week.

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