July 17, 2003

Dating the Business Cycle

The NBER's Business Cycle Dating Committee has decided that the last business-cycle trough took place in November of 2001. More interesting, they seem to have dropped employment from their list of principal monthly indicators. Their report puts income first, industrial production and sales second, and refers to Macroeconomic Associates's estimates of monthly GDP:

Release: For these reasons, the committee refers to a variety of monthly indicators to choose the exact months of peaks and troughs. It places particular emphasis on real personal income excluding transfers and on employment, since both measures reflect activity across the entire economy. The committee places less emphasis on the industrial production and real sales series, which mainly cover the manufacturing and goods-producing sectors of the economy. The committee also looks at estimates of monthly real GDP prepared by Macroeconomic Advisers. There is no fixed rule about what weights are assigned to the various indicators, or about what other measures contribute information to the process...

IIRC, it used to be that employment, incomes, sales, and industrial production were more-or-less all given equal weight.

It also used to be that those four series tended to have peaks and troughs that were very tightly clustered together. It is because incomes, sales, and GDP are out-of-step with industrial production and very out-of-step with employment that has led to hesitation on the part of the Business Cycle Dating Committee--hesitation that is now resolved. Posted by DeLong at July 17, 2003 09:39 AM | TrackBack


Which makes the NBER's definition of a 'recession' that much less relevant to those of us who aren't economics professors, Wall Street shills or government officials.

Posted by: Barry on July 17, 2003 09:45 AM

The books are being cooked people. Get used to it.

Your goose is next.

Dropping of employment as an indicator basically means that the declaration of Recession is completely different and the rationalization - that the job market refuses to pick up - is saying "well let them eat cake."

Posted by: Stirling Newberry on July 17, 2003 09:51 AM

Phooey. Such economists have decided that there is no need to even pretend to a meaningful public stance. We find in July 2003, the recession ended in November 2001. Phooey.

Posted by: anne on July 17, 2003 10:06 AM

The NBER determined that a trough in economic activity occurred in Nov. 2001. So what? They are not changing the data, they are not saying that the unemployment number is wrong, they are not saying that the economy is booming.

All the NBER has told us is that in their opinion we are in a weak jobless recovery instead of being in a full-blown recession. Is that really so controversial?

Posted by: achilles on July 17, 2003 10:39 AM

Not controversial, just absurdly belated and useless. Another 412,000 new jobless claims last week. - That is important and timely.

Posted by: jd on July 17, 2003 10:52 AM

Okay but unemployment has gone from like 3.5% to like 6.4% about a 3% change. GDP is rising since 2001 so less people are producing the GDP isn't that an increase in productivity? Tax cuts take a smaller % of the GDP and so we have Deficits, as they forgot to cut the spending. Tax cuts did not create jobs so we have a jobless recovery. The imaginary recession the administration keeps blaming was over in 2001. So where are the jobs? Or as they use to say If You Think The System Is Working Ask Someone Who Isn't.

Posted by: Bruce Ferguson on July 17, 2003 11:09 AM

When the NBER began its work in the 1920s there was no GDP data, no unemployment data. Absent such data they looked at many series and applied judgemental criteria. The justification was that they were engaged in an empirical inquiry into understanding business cycles, using methods that are now obsolete. So why are we still paying attention? In fact, why is the Dating Committee still around (probably bureaucratic inertia)?

Posted by: Phil P on July 17, 2003 11:37 AM

New jobless claims have been above 400,000 for 22 weeks. We are headed for yet another month of slight job creation or more likely job loss. How we get to GDP growth of 4 to 5% this year is beyond me. Unemployment is likely be continue to grow for some time, worsening a difficult situation.

Posted by: anne on July 17, 2003 11:57 AM

"GDP is rising since 2001 so less people are producing the GDP isn't that an increase in productivity?"

Isn't GNP rising largely on home refis?

Posted by: Dave Johnson on July 17, 2003 12:45 PM

"We find in July 2003, the recession ended in November 2001. Phooey."

"Not controversial, just absurdly belated and useless."

Why the criticism? They called the end only 20 months after it happened. For the last recession they waited 21 months -- and the delay helped turn a presidential election.

Congratulate them on speeding things up!

Posted by: Jim Glass on July 17, 2003 04:27 PM

One complaint about NBER is that nothing happens without Marty's approval and the large amount of funding from very conservative right wing foundations. Since Marty is on the GOP reservation is it surprising that they would take a parisan conservative line?

BTW- the NBER or any other group talking about the recession had ABSOLUTELY NOTHING to do with the election loss of Bush41. The unemployment effect on the voters does not come through the TV screen or out of a newspaper (most voters don't read one). The unemployment effect comes from the personal experience of voters either finding good jobs and moving up or losing jobs, being underemployed or unemployed for long periods. Since employment lags economic recovery, even if the recession was over before the 92 election, the voters were still responding to unemployment. The unemployment numbers can be cooked or fudged, but the unemployment malaise at the gut level can not.

This is why Mr. Bush Junior has very little time to turn the economy around. Even if a job creation expansion starts today, the jobs picture is not likely to get better until after a lag.

Bush41 lost because he was too old for the job (second oldest president in history) and he was out of touch. His administration used typewriters, there was no computer network or email in the WH, he acted like he had never seen a grocery scanner. He did not care for domestic politics. Hurricane Andrew devastated southern Florida and it took the administration almost a week to notice. Unemployment was high, he had raised taxes, the budget was a mess, he was running higher yearly deficits than Reagan and the deal he was trying to cut with the Japanese for American auto manufacturers was so bad he threw up. Besides, the voters didn't like him in 88 but he bought enough racist ads to make Dukakis look even less appealing to the average voter. By 92, the voters were smart enough to understand the smear politics and voted their pocketbooks and Clinton despite attempts to portray Clinton as a philandering southern hillbilly.

The public was tired of the Iran Contra scandal and the lying to Congress and the American public about the conduct of foreign policy. Fortunately for the career of Colin Powell, Bush lost and on the way out the door, he pardoned Powell's boss Weinberger and a host of other Iran Contra criminals and that got Powell off the hook.

Posted by: bakho on July 17, 2003 08:25 PM

Yeah the notion that the well-known commie pinko liberal Marty Feldstein decided to bring George Bush Sr. down by asking Bob Hall to delay calling the end of the '91 recession (presumably to get that rabid right winger Bill Clinton elected) is another entertaining piece of late night humor. This is better than Conan ;)

Posted by: achilles on July 17, 2003 09:03 PM

"BTW- the NBER or any other group talking about the recession had ABSOLUTELY NOTHING to do with the election loss of Bush41."

Ha, Ha! ;-) Remind Jim Carville of how *little* effect his "It's the Economy Stupid! Keep talking about the Economy! The Economy!" mantra had on the election.

And tell him how if all the Dems' friends and allies on op-ed pages and in labor groups and buying TV commercials had talked about Clinton's China policy and about how Clinton was going to support NAFTA, instead of focusing on *how bad* the economy was, Stupid!, it would have made no difference at all. Jim'll appreciate that. ;-)

Geeze, groups talking about the recession had *nothing to do* with the election results. Bwah. ;-)

And in all that time no Republican could say, "Look, the recession's over" without a Democrat answering: "It is? How can you say that? Who told you? Look how bad things are! How *out of touch* are you??"

I never said the NBER was partisan, but that's how the chips fell -- and the Clintonistas took *full* advantage of it, just as one would expect professional political partisans to do.

Don't be so disingenuous as to deny it or so naive as to believe didn't happen, if you weren't old enough then to remember. What, do you think the Clintonistas were *incompetent* professional political partisans?

Posted by: Jim Glass on July 17, 2003 10:30 PM

Jim, no one would have listened to "it's the economy stupid" if it did not resonate with the voters. If the voters were finding good jobs and getting ahead financially in 92, then Mr. Bush would have had a second term. Certainly, the press can amplify the feelings of the general public but they cannot direct those feelings.

Look how hard the media pressed to have Clinton impeached and convicted only to have public opinion against impeachment soar along with distrust and loathing of the media. Every media outlet in the country could come out with a story tomorrow on how great the Bush economy is but few would take that at face value. Their own experience tells them differently. This job market sucks. I don't need a newspaper writer to tell me that.

Posted by: bakho on July 18, 2003 06:31 AM

"Resonate" is le mot juste; people listened to "it's the economy, stupid" mainly because it was shouted into the echo chamber that is the American press. (And yes, that same effect did turn to Clinton's disadvantage a few years later.) Since most people aren't out looking for jobs even during a jobless recovery, most people do indeed "need a newspaper writer" to tell them that things are worse than they really are.

Posted by: Paul Zrimsek on July 18, 2003 07:53 AM

Bakho's right. For most people, unemployment is the best indicator of whether or not the economy is struggling. Even if you are among those looking for a job, when unemployment goes up (or down) by more than a percentage point you would have to be a pretty good ostrich to not notice how it affects friends, relatives, college age kids, people going back to the workforce, neighbors etc.

The NBER dating committee does not produce real economic data, it provides an interpretation. The dating is always after the fact, they are not forecasting when the recession will end, just dating the end of the recession. The dating seems to be particularly complicated in jobless recoveries, which ironically have characterized the last two recoveries. Arguments that the NBER dating committee is manipulating politics is just silly, whether it comes from the left or the right - even sillier from the right given Feldstein runs the show.

The argument here seems to be that while the NBER deliberates, there is a vacuum that is exploited by "professional political partisans" shouting into the "echo chamber" of the press.
I am under no illusions that professional political partisans are on one side of the political aisle. They are on both sides, and they both yell into the echo chamber: whose voice reverberates louder is much more likely to be correlated to people's own experience and optimism. "It's the Economy, Stupid" and "Are you Better Off than you were 4 Years Ago" are both clever slogans that clearly acknowledge that people use their own experiences heavily in making determination.

George Bush sr. was not undone by the NBER being slow to LABEL the jobless recovery, he was undone by the fact that it WAS a jobless recovery. The timing problem for old GHWB was not the fault of the NBER but the fault of the gods of the business cycle and his own lack of a coherent economic optimism and vision. Similarly, the NBER declaring the recession over in NOv. 2001 is not going to do one lick of help to Bush the younger unless the anemic rate of growth picks up enough to actually start pushing unemployment down again.

Posted by: achilles on July 18, 2003 08:41 AM

I remain skeptical that even the socially very well-connected know enough people well enough to draw valid inferences about the state of the economy from a sample made up only of themselves and personal acquaintances. And sure enough, polls have shown time and again that, for just about any X you'd care to name, people's opinions about the state of X in the country as a whole are notably more negative than their own personal experiences with X.

What was the "experience and optimism", on the part of ordinary citizens, that made the Clinton affair echo so deafeningly? Like any echo chamber, the press will vibrate at some frequencies but not at others. "Scandal" is the loudest mode of all, but "No jobs!" is no slouch either. Would anyone guess, just from looking at a time series of employment and unemployment data, that there was a big mass-layoffs scare making the rounds of the US press back in 1995?

Posted by: Paul Zrimsek on July 18, 2003 09:29 AM

Not me, I would never have guessed. So who was spreading this mass layoffs scare back in 1995? Clinton was? Why, to get himself re-elected? No that does not make sense then so it must have been Dole then, right? So is that why Dole got trounced, because he was trying to forecast doom and gloom and no one bought it? I am very confused. Please do illuminate.

Posted by: achilles on July 18, 2003 10:45 AM

Paul Z-
Do you mean you don't know any college students that had trouble finidng summer jobs or internships? or recent graduates that are still waiting for that first job? or people who are working part time until something else comes up? What do you do stare at your computer all day and don't even talk to people? Say hello to the cashier at the 7/11? You practically have to be an amoeba to not know that the job picture is not good.

Under Clinton, the unemployment rate among blacks went well under 10%. Any doubts as to why Mr. Clinton remains popular among black voters and Mr. Bush is not? Most people vote their pocketbooks, not the pundits.

Posted by: bakho on July 18, 2003 10:58 AM

Achilles-- The press was spreading the mass-layoffs scare pretty much on its own. My whole point. It doesn't take much to get them going on a story like that.

Bakho-- I'm 46 years old and know very few college students of any description. Those I have known have always faced SOME uncertainty entering the job market. There are very few people who know enough of them to form an adequate picture of the job market on an anecdotal basis. Lots of people, however, do tell me the job market is bad. They saw it on the news.

A few minutes' browsing of the comments on this blog should give anyone a pretty accurate picture of who stares at his computer all day and who doesn't.

Posted by: Paul Zrimsek on July 18, 2003 11:37 AM

So the press sometimes yells fire when there is none. See, I really must get away from my computer screen more often but then again I worry that if I do I will miss such pearls of wisdom ;)

Posted by: achilles on July 18, 2003 12:03 PM

I have some equally banal thoughts on why it's, you know, *bad* for the press to scare people with imaginary disasters. But my failure to impersonate Ann Coulter has already disappointed enough people today, and besides, it's Friday evening and the social whirl beckons. No, really, it does.

P.S. Darlene at the 7-11 would like to assure evryone that she does have a job, and to point out that working the cash register at a 7-11 is not exactly the sort of work you can get people to do on a volunteer basis.

Posted by: Paul Zrimsek on July 18, 2003 04:53 PM

Paul, if people can't judge the state of the job market, how can they judge the state of any other market?

Posted by: Barry on July 20, 2003 06:48 AM

They can't, Barry.

Posted by: Paul Zrimsek on July 20, 2003 01:25 PM

A question for you folks:Would someone please explain the following to me: (a) Suppose unemployment lags the business cycle. (b) Given (a), why then would initial jobless claims constitute a leading indicator?

I ask this because (a) appears to be taken as "true," empirically. Further, the Conference Board's Index of Leading Economic Indicators includes initial jobless claims (the inverse of its level).

Thanks, in anticipation. -CI

Posted by: CluelessInterruptus on July 22, 2003 07:51 AM
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