Are we in a recession yet? Part 2.
Finally some admission from the powers that be that we are officially in a recession. Specifically, the economy began contracting in December 2007. This revelation comes as the DOW closed down 680 points, the 4th largest point loss in its history.
So who made the official determination and why did it take so long to confirm what regular people like you and I knew all along. The group is called the National Bureau of Economic Research. According to their website’s FAQ,
Here is the who.
The NBER is the nation’s leading nonprofit economic research organization. Sixteen of the 31 American Nobel Prize winners in Economics and six of the past Chairmen of the President’s Council of Economic Advisers have been researchers at the NBER. The more than 1,000 professors of economics and business now teaching at universities around the country who are NBER researchers are the leading scholars in their fields. These Bureau associates concentrate on four types of empirical research: developing new statistical measurements, estimating quantitative models of economic behavior, assessing the effects of public policies on the U.S. economy, and projecting the effects of alternative policy proposals.
Here is the why.
Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER’s recession dating procedure?
A: Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. As an example, the last recession, in 2001, did not include two consecutive quarters of decline. As of the date of the committee’s meeting, the economy had not yet experienced two consecutive quarters of decline.
And…
Q: Typically, how long after the beginning of a recession does the BCDC declare that a recession has started?
A: Anywhere from 6 to 18 months. The committee waits long enough so that the existence of a recession is not at all in doubt. It waits until it can assign an accurate date.
This committee is appointed by the NBER president and consists of directors responsible for various NBER programs as well as expertise in business cycle research. It does not forecast durations of recessions.
I hope they don’t take as long to announce a depression. Actually, they don’t do that or really use the word.
The NBER does not separately identify depressions. The NBER business cycle chronology identifies the dates of peaks and troughs in economic activity. We refer to the period between a peak and a trough as a contraction or a recession, and the period between the trough and the peak as an expansion. The term depression is often used to refer to a particularly severe period of economic weakness. Some economists use it to refer only to the portion of these periods when economic activity is declining. The more common use, however, also encompasses the time until economic activity has returned to close to normal levels. The most recent episode in the United States that is generally regarded as a depression occurred in the 1930s. The NBER determined that the peak in economic activity occurred in August 1929, and the trough in March 1933. The NBER identified a second peak in May 1937 and a trough in June 1938. Both the contraction starting in 1929 and that starting in 1937 were very severe; the one starting in 1929 is widely acknowledged to have been the worst in U.S. history. According to the Bureau of Economic Analysis, real GDP declined 27 percent between 1929 and 1933, roughly ten times as much as in the worst postwar recession. If the term Great Depression is used to mean the period of exceptional decline in economic activity, it refers to the period from August 1929 to March 1933. If it is used to also include the period until economic activity had returned to approximately normal levels, most economists would judge that it ended sometime in 1940 or 1941. However, just as the NBER does not define the term depression or identify depressions, there is no formal NBER definition or dating of the Great Depression.
For additional information on the National Bureau of Economic Research and the committees Recession Dating Procedure, go to http://wwwdev.nber.org/cycles/recessions_faq.html.
