Despite NBER Statement, Recession Is Likely Over
This morning the National Bureau of Economic Research’s Business Cycle Dating Committee released a statement, which said that it’s premature to announce the recession that started in December 2007 is over, but that doesn’t mean we’re still in a recession.
First a small background: the committee is considered the official negotiator of when U.S. recessions commence and end. Currently, there are seven economists who give on the nonpartisan, nonprofit group, which was formed in 1978, though the NBER has been dating recessions since 1929. The NBER doesn’t define a recession in terms of two consecutive quarters of decline in real GDP, a definition that is often cited as a rule of thumb. Rather, a recession is a significant decline in economic endeavor spread across the economy, lasting more than a few months, normally visible in real GDP, real returns, employment, industrial production, and wholesale-retail sales.
Since the definition of recession takes so many factors into tab, the committee often takes its time to determine the end date. It didn?t officially announce until July 2003 that the 2001 recession, which ran from March to November of that year, was over.
The committee’s dating procedure is basically an literary exercise and it is more concerned with accuracy than speed. Though signs are looking up for the economy and most economists reckon the recession finished a small time in the midpoint of last year, broad risks wait. GDP started to grow again in the midpoint of last year, but fourth quarter GDP was still 2% below the peak it registered in 2008, adjusting for inflation. Meanwhile, last month the economy posted a huge gain in jobs, but those numbers wait preliminary and could be revised.
Reckon of the committee as an oncologist treating a cancer patient. The preliminary tests may look excellent, but until the final results of the MRI come in, you don’t want to announce that the cancer has been really eliminated.