What Goes Around, Comes Around: NBER Not Ready to Declare 'Recession' Over

nberThe "normal person" definition of a recession is two or more quarters of economic contraction as measured by Gross Domestic Product (GDP). This definition was perfectly acceptable to everyone until the 1970s, when the "non-partisan" National Bureau of Economic Research (NBER) was tasked with deciding when recessions begin and end.

In December 2008, the NBER declared that a recession had begun in December 2007. As I've noted several times in several places, they did this despite several contrary indicators such as positive economic growth in the second quarter of 2008, and at best inconclusive results relating to income, industrial production, and employment.

Nonetheless, the establishment media has consistently run with the NBER's definition of when the recession began. After all, they're the experts. Who are we peons to dare to point out that using the normal person definition, the recession began in the third quarter of 2008, continued for four quarters, and ended when GDP went positive in the third quarter of 2009?

In a move that one would expect is causing an excess of expletives inside the White House, NBER officials have indicated that they can't yet conclude that the recession as they define it has ended. A New York Times story carried at CNBC tells us the following (internal link added by me):

Recession Arbiters, Wary of Certifying an Upturn

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 announced Monday that it cannot yet declare an end to the recession that began in December 2007. Several members of the body had reported this to The New York Times 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.

The gross domestic product, the broadest measure of economic activity, officially began rising in the second half of 2009, suggesting that a recovery might have quietly started. But the committee takes other factors into consideration, like employment trends and consumer confidence.

Ben S. Bernanke, the Federal Reserve chairman, and Christina D. Romer, the chairwoman of the White House Council of Economic Advisers, are former members of the committee, and its position could potentially affect their outlook on monetary and fiscal policy.

Here's the full text of the NBER announcement, which is actually dated Thursday, April 8 (paragraph breaks added by me):


CAMBRIDGE, April 8 -- 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.

As to the reaffirmation of the December 2007 start date noted at the end of the announcement, employment, one of NBER's "actual indicators" has changed substantially since its announcement in December 2008. Seasonally adjusted job losses during the first quarter of 2008, thought at the time to be 247,000, then adjusted to 338,000, have since had a final downward revision to only 93,000. Also, don't forget that the unemployment rate didn't go above 5.1%, a level that many economists and other consider to be full employment, until May of 2008.

But you really didn't expect a committee of self-anointed academic geniuses to change its mind, did you?

Meanwhile, if the press is going to be consistent, it's going to have to assume that the recession hasn't ended yet until their designated experts tell them it isn't so. Does anyone expect them (or the administration) to tone down their supposedly indisputable claims that we're in the midst of "recovery and "rebound"? Me neither.

It would be a lot easier if we simply used simple, easily understood objective measurements, wouldn't it? As it is, the same crew that has in my opinion unfairly benefited from a seven-month Bush-bashing free ride (December 2007 to June 2008) on the recession's beginning will get no sympathy from yours truly while it twists in the wind waiting for the NBER to make up its mind over nine months after the recession as normal people define it ended.

Cross-posted at BizzyBlog.com.

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