As we were expecting:

Determination of the December 2007 Peak in Economic Activity

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.

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Category: Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

29 Responses to “Congratulations, Its (Officially) a Recession”

  1. leftback says:

    A recession? Well, thanks NBER. No shit, Sherlock…

    840 level just about holding. This is where we test the 840-970 trading range hypothesis, I guess.

  2. greenie says:

    Kudlow just said on CNBC he thought the US was in a recession in Feb 2008. HUH?

    I think Barry was on Larry’s show and called a recession, LK yelled at him saying NO RECESSION

  3. greenie:
    Are any of Kudlow’s buddies on the NBER? If so, I guess they won’t be on his show anymore.

  4. leftback:
    You still have 2+ hours to go. Wonder if we’ll have a downward draft the last 1/2 hour.

  5. John Borchers says:

    If you don’t believe in PPT how come AAPL always at $90 no matter what the news is?

  6. R. Timm says:

    CalculatedRisk has been posting charts with 12/07 shaded as a recession since the beginning of the year. He also has recently predicted residential housing will bottom in 3Q 2009.

  7. DP says:

    @Leftback, today was always going to be a down day. The “pros” aren’t going to let there be an xmas rally without a better entry point after their vacations last week. Then again, I don’t feel too good about Paulson and Bernanke speaking when we’re within 3 points of that level.

  8. Mannwich says:

    So you won your bet with Jimmy P. then. Big shocker there. Hope he pays up.

  9. SWMOD52 says:

    What do you think? I’m in the QID @ 73.79 from last Wednesday. Sell now or do we have lower to go this week?

  10. notsofastfriend says:

    Nothing a Quadrillion dollars can’t take care of.

  11. Mannwich says:

    I’m hanging onto my QID. Waiting for it to approach 100 (or more) again.

    Hanging onto SRS and EEV (and DUG) as well for now. Taking a wait and see approach on those but SRS is a no brainer to me.

  12. leftback says:

    DP said: “@Leftback, today was always going to be a down day. The “pros” aren’t going to let there be an xmas rally without a better entry point after their vacations last week.”

    Agreed. That’s why I have had some SRS since Friday. It is up close to 20% on the day. Love those double inverses..

    @ Calvin Jones said: “Wonder if we’ll have a downward draft the last 1/2 hour.”

    Ha! Thanks for the reminder, mate. I am trying to think about something else, Calvin. Like the hot chicks on CNBC, or Liverpool’s game with West Ham today. Where is CNBC Sucks anyway?

  13. Mannwich says:

    @leftback: I believe CNBC Sucks said that he’d be “leaving us for a while”. Not sure what that means but I’m guessing he’ll be back sooner than he thought. The site’s too addictive to stay away for long.

  14. leftback says:

    @Mannwich: CNBC Sucks is probably gathering more audio-visual material for his site. I am doing some research on stocks like AAPL, RIMM, GOOG and BIDU. According to Maria Bartiromo, those stocks can make any trader into a Master of Beta.

  15. Mannwich says:

    @lb: You’re probably right. If I recall correctly, CNBC Sucks went on hiatus for a while previously this year but couldn’t stay away from TBP for long. He’ll be back soon enough.

    I have a new rule with CNBC: Any time Maria now talks, I go to the Pandora web site and play my selection of music. It’s much better than listening to Ms. “zero points on Jeopardy” talk nonsense.

  16. Winston Munn says:

    It is amazing – Bernanke is still talking about a monetarist solution, lowering rates again. Somewhere along the way, these boys need to learn that if the problem is bee stings, the cure is not going to be pouring more honey over your head.

  17. Mannwich says:

    Ben can lead a bank and consumer/business to water but he can’t make them lend and borrow.

  18. DL says:

    Mannwich @ 2:36

    But he does have a helicopter.

  19. DL says:

    If GDX makes it to $18 before the end of December, it’s probably worth buying and holding for a few weeks.

  20. Mannwich says:

    @DL: Which is why I own GDX (although trimmed my position last week). Waiting to re-load on another nice dip. The key to this market (besides reading this blog) is staying patient and I’m not a patient guy by nature, so this is not easy.

  21. norcal says:


    Isn’t this a hugely BULLISH event?

    I recall some Chart Porn showing that by the time NBER gets around to announcing a recession, the markets start to turn anticipating a recovery 6 months out.

    Can you re-post?

  22. leftback says:

    I think a rally is coming. The PPT doesn’t trade stocks but the big box mutual funds like to come in and trade about 3.30. Which is why I like to get in just in front of them. The PPT does buy bonds, though. Ben just admitted as much. Of course they also sell them too….

  23. Vermont Trader says:

    Well, now we can move on..

    I officially kick off the debate as to whether we are in a depression or not.

    I say.. not yet!

  24. DL says:

    leftback @ 2:58

    “I think a rally is coming”

    I definitely agree. The question is, does it begin from the 800 level or the 700 level?

  25. Mannwich says:

    I vote 800 this leg down and then a rally.

    The next leg down after the rally in late Dec/early ’08 will be to 700 and then we’ll rally again. The rallies are all getting shorter and hitting lower highs each time while lows are deeper and lower each time. Not a good sign.

  26. norcal says:

    Here’s the chart porn I found via Google Search:

    Market Performance During Recessions: 1900—2008

  27. DL says:

    Mannwich @ 3:39:

    Yes, I’m inclined to “cover my shorts” at about 790 (SPX), only because the “easy money” will have been made by then.

  28. DeDude says:

    I also just “covered my shorts”

    Checked the 401K account and covered my shorts in sh*t :-)

  29. sinful mistress says:

    You guys are smart and all, but the chief “brains” over at Limbaugh & Hannity declared this the Obama recession weeks ago.