The Business Cycle Dating Committee of the National Bureau of Economic Research, the semi-official arbiter of whether we’re in a recession or not, has finally made the call:
The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.
What took the committee so long? I’m pretty sure it had nothing to do with any disagreement over whether we’re in a recession. It was all about picking the right starting date. On Friday, the committee’s seven members (an eighth, Christina Romer, quit last Tuesday after President-elect Obama picked her to be chairman of his Council of Economic Advisers) had a conference call and decided on December 2007. As the committee’s chairman, Stanford economics professor Robert Hall, told me almost exactly a year ago:
We don’t usually have a conference call until we are quite convinced that a turning point has occurred. Thus the subject of the call is not whether the recession has begun or ended, but rather when that event occurred. Consequently, the call occurs long after it is generally recognized that a turning point has occurred. There is usually a period of 6 months or so when the financial press excoriates us for tardy action.
There have not yet been two consecutive quarters of negative GDP growth, a metric often bandied about in the press as the definition of a recession. So the business cycle committee went to some lengths to explain itself:
The committee believes that the two most reliable comprehensive estimates of aggregate domestic production are normally the quarterly estimate of real Gross Domestic Product and the quarterly estimate of real Gross Domestic Income, both produced by the Bureau of Economic Analysis. In concept, the two should be the same, because sales of products generate income for producers and workers equal to the value of the sales. However, because the measurement on the product and income sides proceeds somewhat independently, the two actual measures differ by a statistical discrepancy. The product-side estimates fell slightly in 2007Q4, rose slightly in 2008Q1, rose again in 2008Q2, and fell slightly in 2008Q3. The income-side estimates reached their peak in 2007Q3, fell slightly in 2007Q4 and 2008Q1, rose slightly in 2008Q2 to a level below its peak in 2007Q3, and fell again in 2008Q3. Thus, the currently available estimates of quarterly aggregate real domestic production do not speak clearly about the date of a peak in activity.
Other series considered by the committee–including real personal income less transfer payments, real manufacturing and wholesale-retail trade sales, industrial production, and employment estimates based on the household survey–all reached peaks between November 2007 and June 2008.
The measure that seems to have clinched December in particular as the start date was payroll employment, which peaked that month and has declined in every month since.
So there you have it. It’s no longer a recession-like episode. It’s the real thing.
Update: Business cycle dater Jeffrey Frankel of Harvard offers his explanation:
Why did we pick December 2007 as the start of the recession? As is the case surprisingly often, different economic indicators give very different answers to the date of the peak.
Of the monthly indicators to which the BCDC gives primary attention, the most important is jobs, more specifically Payroll Employment (from the Labor Department’s Bureau of Labor Statistics). It peaked in December 2007, and has been declining ever since. My personal favorite indicator is Total Hours Worked (which is closely related, because it is number of people employed times the average number of hours per worker). Hours Worked also peaked in December …