Mon, December 01, 2008
It’s Official: We’ve Been in A Recession For A Year
We all knew it in our bones, but now the word has come down from on high - the US economy has been in a recession since last December.
The white smoke billowing from the chimneys of our neighbors over at the National Bureau of Economic Research was released this morning. The Business Cycle Dating Committee of the NBER, when it’s not busy arranging candle-lit meals for business cycles, is also responsible for determining when US recessions officially start. By the time the announcement is made, everyone is already pretty sure that we’re in a recession, as the committee normally needs 6 to 18 months to confirm that the economic indicators meet their criteria. The official report from the NBER explains that
A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.
By this definition, the economy peaked in December 2007 after 73 months of expansion. Payroll employment has declined in every month since that time, and most major indicators, “including real personal income less transfer payments, real manufacturing and wholesale-retail trade sales, industrial production, and employment estimates,” peaked some time between November 2007 and June 2008. Although a recession is often popularly defined as two consecutive quarters of decline in gross domestic product (GDP), this is not the official definition. The report points out that the recession that ended in 2001 did not include two consecutive quarters of GDP decline, and so far this recession hasn’t either. What matters, the committee notes, is evidence of declining economic activity, and we’ve got plenty of that.
In past business cycles, a recession has often been over by the time the NBER has determined its starting date. This time, that seems unlikely.
Postscript added December 2, 2008: Kudos to Jeff Frankels, a member of the NBER committee, who obviously has a sense of humor; his blog post on this is entitled, ”NBER Eggheads Finally Proclaim Recession.” He answers a couple of questions that he apparently hears a lot about the committee’s pronouncements.