January 7, 2008

THE DATA CREEPS IN:

Economists who make the recession call: An arcane body called the National Bureau of Economic Research is in charge of deciding when America is officially in recession. Its time may have come (Stephen Foley, 08 January 2008, Independent)

Will there be a recession in the US? Right now, everyone seems to have an opinion, everyone is furiously debating the question.But only one organisation will have the answer. That organisation is the National Bureau of Economic Research.

Whereas in the UK, the Treasury can flex Gordon Brown's 10-year-old golden rules by redefining the beginning and end of the business cycle at will, the dusty-sounding but uber-influential NBER has been arbiter of the US business cycle for nigh on 90 years. Only when the NBER raises its red flag will the US officially be in a recession; only when its green flag goes up can we be sure we are once again in the clear. [...]

It takes the NBER several months to determine exactly when a recession begins and ends. November 2001, the last time the organisation proclaimed a recession, was the same month that it turned out to have ended. The organisation is particularly wary of false starts and false dawns, saying it waits to be sure all its measures of economic activity complement each other. "A recession involves a substantial decline in output and employment," it says. "In the past six recessions, industrial production fell by an average of 4.6 per cent and employment by 1.1 per cent. The bureau waits until the data show whether or not a decline is large enough to qualify as a recession before declaring that a turning point in the economy is a true peak marking the onset of a recession."


Indeed, not only will 2001 end up not having been a recession but 1991 won't have been one either.

Posted by Orrin Judd at January 7, 2008 11:31 PM
Comments

"The organisation is particularly wary of false starts and false dawns, saying it waits to be sure all its measures of economic activity complement each other."

This attitude, more than anything else, will ensure some sort of redefinition of recession in the future. If the last 25 years have been any indication, most sectors of the economy can run quite well while one sector or two is in the tank.

Let's just say I'm glad my sector (telecom) is doing rather well right now, which was something I could not say six years ago.

Posted by: Brad S at January 8, 2008 11:14 AM
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