March 31, 2003

Latest NBER Business-Cycle Report

The latest NBER business-cycle memo. I think it's time to wander down the hall and ask David and Christie Romer whether the inability of the Committee to decide now--fifteen months after what I see as the recession trough--whether we are in an expansion or not is not sufficient reason to rethink the whole business-cycle methodology that Wesley Clair Mitchell set up for the NBER.

The NBER's Recession Dating Procedure: ...According to the most recent data, the U.S. economy continues to experience growth in output and income without growth in employment. Employment, which grew in January after several months' downturn, declined substantially in February. Because employment is still at a low level, it remains our conclusion that additional time is needed to interpret the movements of the economy last year and this year. The NBER's Business Cycle Dating Committee will determine the date of a trough in activity when it concludes that a hypothetical subsequent downturn would be a separate recession, not a continuation of the past one. The trough date will mark the end of the recession. The committee will not issue any judgment about whether the economy has reached a trough until it makes its formal decision on this point. The committee waits for many months after an apparent trough to make its decision, because of data revisions and the possibility that the contraction would resume. For example, the committee waited until December 1992 to announce that a trough had occurred in March 1991.

In November 2001, the committee determined that a peak in business activity occurred in the U.S. economy in March 2001. A peak marks the end of an expansion and the beginning of a recession. The determination of a peak date in March is thus a determination that the expansion that began in March 1991 ended in March 2001 and a recession began in March. The expansion lasted exactly 10 years and was the longest in the NBER's chronology.

A recession is a significant decline in activity spread across the economy, lasting more than a few months, visible in industrial production, employment, real income, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.

Because a recession influences the economy broadly and is not confined to one sector, the committee emphasizes economy-wide measures of economic activity. The traditional role of the committee is to maintain a monthly chronology, so the committee refers almost exclusively to monthly indicators. The committee gives relatively little weight to real GDP because it is only measured quarterly...

Posted by DeLong at March 31, 2003 03:16 PM | TrackBack


But isn't the real question is did the economy peak again? The February numbers were just abysmal and March augurs weak.

Posted by: JDL on March 31, 2003 06:21 PM

But isn't the real question is did the economy peak again? The February numbers were just abysmal and March augurs weak.

Posted by: JDL on March 31, 2003 06:22 PM

I'm afraid I'm inclined to agree with the dating committee. In one sense classifying activity is simply a taxonomic problem, and there is always more than one way to peel the onion. But given the level of uncertainty surrounding current conditions - I would use the term fundamental, or strategic, uncertainty - I think it's wise to be prudent.

The question really is whether this is a continuation of what's been happening already, or if it is something new. The latter would need to be the case to make it worthwhile separating it out analytically.

Now if the recent stalling of the housing market is an indicator that the real economy is about to feel the consequences of the earlier 'correction' in the equity markets, then analytical convenience and simplicity (think Occam) suggests it might be better to group the two together. Of course, like the Catalan oath, if not, then not....

This is why, wait and see may be the better option. If my memory serves me well we do talk about 'the Great Depression' as one event, even if what started in 29 only really became fully apparent in its consequences in 31. I'm not saying it's that bad, but it sure ain't good.

Posted by: Edward Hugh on March 31, 2003 10:09 PM
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