The NBER's business cycle dating committee has a problem. Its entire methodology--inherited from Wesley Clair Mitchell and Arthur Burns back in the mists of time--is based on the belief that production, income, employment, and sales all move together relative to their long-run trends in a "business cycle." So what do they do when employment behaves differently? It's not clear, because it's not something that W.C. Mitchell expected to see happen very often at all. Yet that's where we are.
I think that they should shift to an explicitly unemployment and potential output-based three-art classification: recession (unemployment rising so rapidly that production is falling); sub-normal expansion (unemployment rising slowly even though production is rising slowly); and above-normal expansion (unemployment falling). But I don't get to sit in the big cushy chairs...
Posted by DeLong at October 11, 2002 10:05 AM | TrackbackThe NBER: The U.S. economy continues to experience increases in production and income with no significant growth in employment. According to recently revised data, real personal income has generally been growing over the past year. Employment grew slightly from May through August 2002, but declined in September...
Indeed, because there is political interpretation to their disregard of unemployment for timing of recessions. Union-minded people would tell you that the labor factor is systematically being ignored in American politics and media:
For example, there is an investment news hour on most channel but there is rarely if any labor news show. Their opinion is that this is a reflection of am ideological bias in favor of one factor of production (capital) versus an other (labor).
I don't think the NBER has fallen prey to that kind of bias, personally. But it should be careful not to loose its credibility over some segment of the political spectrum, especially since Martin Feinstein is not really a liberal economist...
Posted by: Jean-Philippe Stijns on October 12, 2002 01:25 PMAn interesting proposal, but looking at the graphs that might have made it difficult to identify the begining of this recession, since it seems that employment held up rather well at the start, whilst industrial output was falling dramatically, the real dip in employment not coming until September.
Isn't the real point that every recession, and expansion, is different, and that this kind of taxonomy is only real a rule of thumb, guidline system. After all if the financial markets thought there were rosy profits round the corner then they wouldn't be were they are now, and taking up Jean-Philippe's point, I'm sure that the CNN Money type media is much more important in forming opinions and expectations about the future among the general public than are the NBER dating comittee touch judges.
All in all they are getting quicker though bearing in mind that:
>>the committee waited until December 1992 to announce that a trough had occurred in March 1991.<<
Somehow I don't think we'll have to wait so long to know whether they think this one is over, or whether they found out it was only just begining.