With all the recent talk of a looming recession, I figured I ought to check in with Stanford economist Robert Hall, chairman of the Business-Cycle Dating Committee of the National Bureau of Economic Research, the semi-official arbiter of when recessions start and end. I e-mailed:
When everybody starts talking recession, as is this case now, what do you folks on the Business-Cycle Dating Committee do? Schedule a meeting in Cancun? Set up a conference call? Start sending around lots of e-mails? Deputize somebody to keep an especially close eye on incoming economic data? (I just imagine there must be some form of heightened activity, and I’m curious as to what form it takes.)
He responded:
We all follow developments pretty closely. Now that Larry Summers has scooped us, all the more so.
The process begins with emails. 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.
We don’t generally have a physical meeting, though we do if the time for action happens to coincide with the annual meetings of the American Economic Association at the beginning of January. So far there has been no suggestion of a meeting when that happens in 6 weeks, but things could change.
I can certainly add as an individual member, now not speaking as chair, that I see some dark clouds. The high levels of consumption seen in the past decade may decline to something closer to normal. The relation of the consumption bulge to the house-price boom is still unclear, but it would not be a surprise to see the two variables return to normal together.
The Business-Cycle Dating Committee is one of my favorite weird little American institutions. It was set up by Harvard economist Marty Feldstein after he took over as president of the NBER in 1977. Before that, veteran NBER staffer Geoffrey H. Moore (he’d been there since 1939) had more or less singlehandedly determined what was a recession and what was not. Feldstein decided such work was better done by a committee.
Moore went on to found the Economic Cycle Research Institute in New York, a forecasting firm that even after his death in 2000 remains the most reliable and timely indicator of when a recession has begun (the latest from ECRI managing director Lakshman Achuthan: Not yet, although there are “yellow flags”). But the final word comes only months later from the NBER committee.
Its members do not follow the short-hand rule that a recession is two consecutive quarters of negative growth in real GDP, a misdefinition that, I learned today (thanks, Barbara!), was probably the dastardly doing of Arthur Okun, chairman of LBJ’s Council of Economic Advisers. That’s partly because, given the constant revision and re-revision of GDP, you’d have to wait about five years to conclusively declare a recession. But it’s also because economic downturns don’t necessarily start and end on a quarterly basis. Here’s the definition the NBER follows:
A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.
There’s little or no data to back up the argument that we’re in one of those yet. But just you wait.