Are We in a Recession?

In case you had any doubt, according the the NBER's Business Cycle Dating Committee, yes, we are in a recession and it began a year ago in December 2007 [update: more from Jeff Frankel - a member of the Dating Committee - here]:

Determination of the December 2007 Peak in Economic Activity, NBER: The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28. The committee maintains a chronology of the beginning and ending dates (months and quarters) of U.S. recessions. 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.

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.

Because a recession is a broad contraction of the economy, not confined to one sector, the committee emphasizes economy-wide measures of economic activity. The committee believes that domestic production and employment are the primary conceptual measures of economic activity.

The committee views the payroll employment measure, which is based on a large survey of employers, as the most reliable comprehensive estimate of employment. This series reached a peak in December 2007 and has declined every month since then.

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 committee determined that the decline in economic activity in 2008 met the standard for a recession, as set forth in the second paragraph of this document. All evidence other than the ambiguous movements of the quarterly product-side measure of domestic production confirmed that conclusion. Many of these indicators, including monthly data on the largest component of GDP, consumption, have declined sharply in recent months.

The committee’s primary role is to maintain a monthly chronology of the business cycle. For this purpose, the committee mainly relies on monthly indicators. It also considers quarterly indicators and maintains a quarterly chronology. In its deliberations, the committee relied on a number of monthly and quarterly economic indicators published by government agencies. The Appendix to this announcement lists these indicators and their sources. The Appendix also describes the calculations required to reproduce the series that the NBER committee examined in its deliberations.

The Month of the Peak

The committee identified December 2007 as the peak month, after determining that the subsequent decline in economic activity was large enough to qualify as a recession.

Payroll employment, the number of filled jobs in the economy based on the Bureau of Labor Statistics’ large survey of employers, reached a peak in December 2007 and has declined in every month since then. An alternative measure of employment, measured by the BLS’s household survey, reached a peak in November 2007, declined early in 2008, expanded temporarily in April to a level below its November 2007 peak, and has declined in every month since April 2008. For a discussion of the difference between payroll and household survey employment measures, see Mary Bowler and Teresa L. Morisi, “Understanding the Employment Measures from the CPS and CES Surveys,” Monthly Labor Review, February 2006, pp. 23–38.

The committee uses real personal income less transfer payments from the Bureau of Economic Analysis as a monthly measure of output. The deduction of transfer payments places the data closer to the desired measure, real gross domestic income. To adjust personal income less transfer payments from nominal to real terms (that is, to remove the effects of price changes), the committee uses the deflator for gross domestic product. Because this deflator is only available quarterly, the committee interpolates the published series to approximate a monthly price index for GDP. The resulting monthly measure of real personal income less transfers is an imperfect measure of monthly real output because of definitional differences between personal income less transfers and gross national income and because we use the interpolated price index. Our measure of real personal income less transfers peaked in December 2007, displayed a zig-zag pattern from then until June 2008 at levels slightly below the December 2007 peak, and has generally declined since June.

Real manufacturing and wholesale-retail trade sales from the Census Department is another monthly indicator of output. It is an imperfect measure of the production of goods and services for at least three reasons. First, it covers only goods and not services. Second, it does not deduct the sales of imported goods. Because the real value of imports declined substantially over the relevant period, the measure understates the growth of output. Third, the government does not publish a price index corresponding to the coverage of the measure. The committee uses the same interpolated GDP deflator as discussed above. Real manufacturing and wholesale-retail trade sales reached a well-defined peak in June 2008.

The last monthly measure of production is the Federal Reserve Board’s index of industrial production. This measure has quite restricted coverage—it includes manufacturing, mining, and utilities but excludes all services and government. Industrial production peaked in January 2008, fell through May 2008, rose slightly in June and July, and then fell substantially from July to September. It rose somewhat in October with the resumption of oil production disturbed by hurricanes in the previous month. The October value of the industrial production index remained a substantial 4.7 percent below its value in January 2008.

The committee noted that the behavior of the quarterly estimates of aggregate production was not inconsistent with a peak in late 2007. The income-side estimate of output reached its peak in the third quarter of 2007. The product-side estimate reached a temporary peak in the same quarter, but rose to a higher level in the second quarter of 2008.

The Quarter of the Peak

The committee determined that the peak quarter of economic activity was the fourth quarter of 2007. When the monthly peak occurs in the last month of a quarter, the NBER’s long-standing procedures dates the quarterly peak either in the quarter containing the monthly peak or in the subsequent quarter. Thus, the committee could have dated the quarterly peak in 2008Q1 if it had determined that economic activity was higher in that quarter than in 2007Q4. However, the committee determined that this was not the case. Most notably, both payroll employment and the income-side estimate of domestic production were lower in 2008Q1 than in 2007Q4, and the product-side estimate of domestic production was only slightly higher. The committee found that the peak quarter was the one containing the peak month, 2007Q4.

Further Comments

Although the indicators described above are the most important measures considered by the NBER in developing its business cycle chronology, there is no fixed rule about which other measures may contribute information to the process in any particular episode.

Committee members are: Robert Hall, Stanford University (chair); Martin Feldstein, Harvard University and NBER President Emeritus; Jeffrey Frankel, Harvard University; Robert Gordon, Northwestern University; James Poterba, MIT and NBER President; David Romer, University of California, Berkeley; and Victor Zarnowitz, the Conference Board. Christina Romer of the University of California, Berkeley, resigned from the committee on November 25, 2008, and did not participate in its deliberations of November 28.

For more information, see the FAQs below and also see http://www.nber.org/cycles.html.

Comments

[Barkley Rosser]

When I was at the Galbraith conference in New York on November 14, Allen Sinai spoke and declared that we had been in recession since the beginning of the year. He is forecasting that the recession will continue through all of next year. In any case, it now appears that the NBER agrees with him.

[paine]

something very morbid about this flea cracking
given what lies out there
for the job markets....ready to pounce

[anne]

Whatever is the point of officially finding on December 1, 2008, that America has been in a recession since December 2007. This is beyond irony, even as a sort of attempt at self-ridicule not the least amusing? Simply shameful.

[Barkley Ross]

anne,

This is not "shameful." It is the way the NBER committee operates and is perfectly reasonable. The problem is that they wish to have all the data in without any further revisions possible to be made. They always make these judgments long after the fact because of this. It is not shameful. It is being careful and scientific.

Grow up.

[hari]

I suspect this is a consequence of NBER statistical evidence which, I am told, has a backlog of months! There must have been revisions done on figs accumulated since last year, for them to call it now.

Any damn fool knows from (Aug 2007) not on Nov 14th(!), G-20 arrival dinner at WH, that recession was underway.

[anne]

"Grow up."

Notice the crazed vicious bullying, beyond all self-control. Notice how intimidated I am.

[anne]

Job creation has declined in every month since December 2007, and had been slowing for months before. There have been 1.2 million jobs lost in all since December 2007 to October 2008, with 1.3 million lost in the private sector through a period when simply keeping up with population growth would have meant adding 1.5 million jobs. This pronounced problem in the labor market come after an economic expansion that was the weakest for ordinary workers since 1945, but a battery of chosen specialists could not tell us we were in a recession for a year after we were in a recession. I suggest there is a problem with the specialists. Shameful.

[calmo]

Tis self-reinforcing, yes?
It is now official...reinforcing not only suspicions (however shameful) but the authority so invested to make things official.

Izat clear? Tell me it's at least as clear as paine's "flea cracking" (infinitesimally small insect incubating on the dog's back...about to start the dog's leg that will nearly kick its ear off) [calmo reconsider's "dog" for "cat" and the copious use of flea powder...these pet-free people may have no idea...]

Nonetheless, I remain unconvinced that this is the final official declaration (having made an earlier guess at CR's is part of this picture...I B so wounded to be years early) and think there is room to revise to an earlier start...it being politically favorable and trillions of dollars in house-related products might require a hedonically adjusted (computer-like) weighting.

[im1dc]

"Are We in a Recession?"

Yes and Germany is too.

German carmakers make fresh move to cut output

Tue Nov 25, 2008 11:41am EST

* Porsche schedules 8 days of production stops at main plant

* Volkswagen may stop production in Wolfsburg for 3 weeks

* Audi says production halts are a precaution

* BMW says will cut further 400 temporary jobs in Leipzig

* Porsche shares down 8.8 pct, VW down 17.7 pct

http://www.reuters.com/article/rbssAutoTruckManufacturers/idUSLP56414020081125

[Gegner]

Well, at least now it's official. What other two term president's handling of the economy sparked not one but two recessions?

Why that would be St. Ronnie, wouldn't it.

To be fair, they both inherited their first one...but the second one was born from their mismanagement of the first.

[anne]

"What other two term president's handling of the economy sparked not one but two recessions?"

Dwight Eisenhower:

http://fraser.stlouisfed.org/publications/scb/page/9105/1781/download/9105.pdf

July, 1976

Contraction & Growth

(%GNP)

1953 3897
1954 3779

1955 3962
1956 3976
1957 3976
1958 3902
1959 4069

1960 4078
1961 4112

* Per capita 1972 dollars

[anne]

http://fraser.stlouisfed.org/publications/scb/page/9105/1781/download/9105.pdf

July, 1976

Contraction & Growth *

1953 3897
1954 3779

1955 3962
1956 3976
1957 3976
1958 3902
1959 4069

1960 4078
1961 4112

* Per capita 1972 dollars

[Correcting....]

[anne]

There was only a single recession during the Presidency of Ronald Reagan (at the beginning, and brought about expressly by the Federal Reserve).

[Barkley Ross]

anne,

I shall repeat it only once. It is not "shameful." As hari notes, there are very long lags in the data that they use to make their analyses. If you want them to be stupid journalists shooting off their mouths and then having to take back what they said, fine. But, it is not their job to be forecasting. It is their job to determine the historical record once and for all. That means that they must wait for all the data to come in with all its ultimate revisions, and the latter can take many months and often are large. They do not wish to make mistakes but to be scientific.

The Crazed and Vicious, Out-of-All-Self-Control Bully

[Marcello]

Don't know if this is exactly Anne's point, but what on earth is the point of a panel of economists telling us what happened A YEAR AGO ? What we need is insight into what is happening _now_ and into the future.

If it takes a year to process that information, and really it probably does, then what the heck is the use of all these monthly numbers that come out, and move markets up and down ?
IMO this really highlights the fact that those high-frequency numbers are just _noise_, with some hanky-panky to smooth out the bumps. Things are far too complicated, and too hard to measure, to admit high-frequency reporting.

p.s. - gotta love how economists can make a career out of predicting the past.

[Patricia Shannon - multi-page comment sections]

http://www.bloomberg.com/apps/news?pid=20601087&sid=ajdX7VAR_MbE&refer=home

Recession in U.S. Started in December 2007, NBER Says (Update2)

By Timothy R. Homan and Steve Matthews

Dec. 1 (Bloomberg) -- The U.S. economy entered a recession a year ago this month, the panel that dates American business expansions said today.

The declaration was made by the cycle-dating committee of the National Bureau of Economic Research, a private, nonprofit group of economists based in Cambridge, Massachusetts. The last time the U.S. was in a recession was from March through November 2001, according to NBER.
Where does this nonprofit get it's funding? What is it's purpose?

[Patricia Shannon - multi-page comment sections]

The night of the election in 1988, I was with a group of Democrats. When the election was announced for Bush 1, it was obvious that we all felt the same. We were disappointed that our candidate did not win, since we believed he would be better for the country, or else we wouldn't have been working so hard. But we were also relieved, because we knew that Reagan's policies, including the big deficit, was going to cause a recession, and whoever was president then would be blamed.
And of course, that is exactly what happened, resulting in a single term for Bush 1.

[Patricia Shannon - multi-page comment sections]

http://www.nber.org/info.html

HISTORY OF THE NBER

Founded in 1920, the National Bureau of Economic Research is a private, nonprofit, nonpartisan research organization dedicated to promoting a greater understanding of how the economy works. The NBER is committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community.

[calmo]

there's another "official" instance:
p.s. - gotta love how economists can make a career out of predicting the past.

p.s. this could be as dysfunctional (not exactly "shameful") as "last ting" (which I prefer...having stole it from...melvin prolly...and need to strut my Robinhoodedness) or merely redundant (but again not entirely as there might be readers who "see" beyond the end of the post...or recognize it as an important afterthought needing that demarcation: this cake B the body of thought / p.s. this B the icing...required to make the cake look mo betta.

I like Gegner's observation regardless of its precision.

p.s. I mean close enough forchrisakes.

[Patricia Shannon - multi-page comment sections]

If the job of the NBER is only for historical and educational purposes, what official organization should have pointed out much sooner that we have indeed been in a recession? It's not like ordinary people didn't know it. It's not like Democrats didn't know it. Surely it was just a coincidence that the official announcement came out after the general election. (sarcasm)

[The Baron]

Patricia Shannon thanks for the links. Now if those above will stop and really think about what it means, maybe we can stop the name calling.

The point of the NBER is to document and record exactly what happened at any point in the economy, so that with as perfect a record as can be attained, we can look at the past to help predict the future.

As Marcello notes, almost sarcastically:

IMO this really highlights the fact that those high-frequency numbers are just _noise_, with some hanky-panky to smooth out the bumps. Things are far too complicated, and too hard to measure, to admit high-frequency reporting.

Anyone to whom this hasn't been clear for decades, hasn't been paying attention. Just look at the record of adjustments-after-the-fact that occur on all of the reported headline economic numbers. Unfortunately those numbers, which are desperately needed in high frequency, can not be produced accurately in high frequency, so what is done is take the best you can get to formulate policy today and run with it. That does not take away the need, and in fact makes the need far more dire, for someone to come along well after the fact, when it no longer matters so there is little incentive to 'game' the numbers, and record what really did happen.

Please don't denigrate the crucial service the NBER provides, and just pray that it truly is as impartial as they claim. Otherwise, there is no factual record of what has occurred.

[The Baron]

Patricia Shannon, perhaps the question should be, "What official organization should would you trust to have pointed out much sooner that we have indeed been in a recession?

[Barkley Rosser]

First of all, I shall apologize to anne for saying "grow up" in connection with this thread. Not appropriate. However, her comments were not at all appropriate or useful.

To all of you: there are plenty of bodies out there whose job it is to advise the president and the Congress and the public about what is going on right now, starting with the Council of Economic Advisers. There is only one body whose job it is to make official pronouncements for the historical record after all the data is definitively in, and that is this committee of the NBER. If you shut it down for all the stupid reasons being spouted off here, then there will either be nobody to do it, or another body will have to be assigned this task.

The NBER has been around since the early 1920s. I am not sure what its funding is, but it has been doing analysis of business cycles since before pretty much any other existing body that does any of this, including the CEA, has been. So, cool it all you outraged people. This may not be infantile, as I suggested in my remark to anne, but it is ignorant and silly, barely above infantile.

[anne]

Possibly there is need just to consider a recession as 2 consecutive quarters of negative economic growth, and use other gauges for the health of the economy. Just as there was clear evidence by July that we were in an employment recession, there was an event happening from February in the bond market that has not been seen since the Depression. While the Federal Reserve was lowering short term interest rates, at least Treasury rates, there was a startlingly continual increase in commercial interest rates from February 11. Bond investors were preparing for a severe economic decline, even as the economy was still growing in general.

Surely a committee of specialists that meets for the purpose of gauging the economy, while using a complex of indicators needed to have known that there was a severe set of problems developing and set what was known down. (Remember housing?)

I have to wonder whether the supposedly independent specialists were really concerned more with the election than with our economic health.

[anne]

James Poterba, President of the NBER, I wonder.... Republican or Democrat? Stuff like this makes no difference among specialists, especially the specialists who tell us whether we are in a recession or happily growing on, but I wonder anyway.

[Bruce Wilder]

I can think of various reasons it might take months to process a measurement of a real-time economic phenomena, but all of them beg the question, why aren't we investing in faster turnaround?

If release of the data moves markets, that indicates that there are efficiency gains from the data, and, by implications efficiency gains from making the data more accurate and from making the data more timely. Why not calculate the implied prospective efficiency gain, and invest proportionately to realize the gain?

[paine]

"Things are far too complicated, and too hard to measure, to admit high-frequency reporting"
no
the public sector could build a great system
if the interests really wanted clear signals
not lots a room for interpretation and differeing opinion because of complexity
its not complexity though it is complex
its a feeble poorly staffed and funded under equiped system
that produces a srteam of numbers that are conveniently full of "noise"
if you want to react to macro events slowly partially cautiously
and retain an alibi

[paine]

"If release of the data moves markets, that indicates that there are efficiency gains from the data, and, by implications efficiency gains from making the data more accurate and from making the data more timely"

public good vs
aq very lopsidedly anti enlightenment
nexus of private interests

who wins

[anne]

Remembering, I remember when we were told by an influential Democratic leaning economist * about a year ago the Bob Herbert of the New York Times needed to be retired for daring to tell us us that we were in a recession. That Herbert worries especially about ordinary workers, and also about African American and Latino workers, who were evidently in difficulty a year ago made no difference. Were the word recession to be wrongly used by the wrong sort of person at the wrong time, well, you can only imagine.

"Recession," the sacred economical word, handle with foreboding.

* http://delong.typepad.com/sdj/2007/11/can-we-retire-b.html

November 10, 2007

"Yes, it is yet another edition of why oh why can't we have a better press corps. This time it is Bob Herbert who should be retired and sent to doing something socially useful."

[pgl]

Jeff Frankel has a heck of a sense of humor. Calling himself and his NBER colleagues "eggheads". LOL!

[paine]

"If you shut it down for all the stupid reasons being spouted off here, then there will either be nobody to do it, or another body will have to be assigned this task "

who wants to shut down or evenn shut up
uncle marty's remade NBER ???

keep your shirt on Bark
we love ya
and of course your right scholarship has its own pace

but real time re acting "bodies"
get straight f''s on this one
on their report cards
from last summer ...no from 2004
too little too late

[anne]

http://www.nytimes.com/2007/11/10/opinion/10herbert.html?ref=opinion

November 10, 2007

Recession? What Recession?
By BOB HERBERT

If it looks like a recession and feels like a recession ...

http://delong.typepad.com/sdj/2007/11/can-we-retire-b.html

November 10, 2008

Can We Retire Bob Herbert?

Yes, it is yet another edition of why oh why can't we have a better press corps. This time it is Bob Herbert who should be retired and sent to doing something socially useful.

[For want of a word, or something.]

[paine]

"Jeff Frankel has a heck of a sense of humor. Calling himself and his NBER colleagues "eggheads"

no if he had a sense of humor
he would have used the word "scrambled "

[anne]

Notice, now, how a leading economist chose to close a plea to have Bob Herbert retired to do something socially useful rather than call recession when not permitted to call recession:

"How has the New York Times managed to pick Bob Herbert out of the 75 million liberal adults in America? It is a mystery."

[paine]

anne you get it right

if you want places to burn down you don't go by smoke smells but by garishly illuminated sky lines

[anne]

Paine, please notice the important essay contradicting the tale of Roosevelt not wishing to work on a transition with Hoover:

http://www.nytimes.com/2008/11/30/opinion/30leuchtenburg.html

November 30, 2008

Keep Your Distance
By WILLIAM E. LEUCHTENBURG

Chapel Hill, N.C.

ON election night, Nov. 8, 1932, Herbert Hoover, in the company of friends and neighbors at his home on the Stanford campus, sifted through returns that were rendering a verdict on a presidency begun so hopefully on a March day in 1929. As she observed him — his eyes bloodshot, his face ashen, his expression registering disbelief and dismay — a little girl asked, "Mommy, what do they do to a president to make a man look like Mr. Hoover does?" ...

[Bruce Wilder]

I know I say this every time business cycle dating comes up, but the dating of the Feldstein recession, March 2001 to November 2001, still seems somewhat off, not perfectly fitting the usual criteria. (I think it started sooner and probably ended later.) The dating of the Feldstein recession -- which (obviously) I blame on the pernicious influence of Feldstein, thus explaining why I'm referring to it as the Feldstein recession -- seemed to require the committee to place an unusual weight on real GDP growth over and against employment numbers.

There's a whole stupid right-wing doctrine that minimizes much of the Long Depression, 1869-1896 or 1873-1895, on the basis of real GDP growth estimates. There's definitely an element of ideological class warfare involved, in emphasizing income growth over employment, while ignoring income distribution.

Having followed the link provided by MT to Jeff Frankel's weblog comment, I thought it was interesting that he threw up a chart of employment data (an index of hours worked), and commented on the ambiguity of GNP data, while noting the lovely fit of the hours worked index.

[Barkley Rosser]

anne,

I don't know about Poterba, although he seems very middle of the road technocratic, unlike Feldstein, whatever his affiliation. The committee is certainly bipartisan. Bob Hall is a Republican and advised Reagan among others. Frankel was a member of Clinton's CEA. I think Zarnowitz is a Dem. Not sure about others, but this committee is most definitely not some partisan whack job outfit. They may be slow, but they take what they are doing seriously.

Bruce,

I am sorry, but I doubt you are going to get things speeded up. The main problem is getting all that data in and fully revised. There are really serious problems with that and a lot of money thrown at it is not going to speed it up much, I fear. One of the slower ones to come in is export and import data. Lots of people take it for granted that data should be available instantly, and some is, such as stock market prices. But such things as the actual volume of exports, this is not easy to determine and gets revised for months afterwards.

Again, folks, it is important to think what this is for. It is not really for current policymakers. It is for future ones and future analysts. I would note that on this blog there have been lots of posts and discussions in which people have been looking at past data on when recessions occurred, going back decades. People take it for granted that those judgments are based on fully accuarate data. Let those in the future have the same assurance. Again, there are plenty of other bodies whose job it is to make calls as currently as possible based on whatever data is at hand. Even speeding up this data revision process by a few months is still going to leave the NBER committee coming in way after the fact. That is just a fact.

[anne]

Correcting, the date of Brad DeLong's complaint about Herbert was November 10, [2007], the same day the Times column appeared. I expect paying attention to Herbert then might have helped.