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NBER Intrigue

Posted By Invictus On January 21, 2010 @ 8:30 am In Cycles,Data Analysis,Economy,Markets | Comments Disabled

Two interesting things happened last November 24. One was pretty well publicized, the other not so much:

  1. We got a downward revision of U.S. GDP for the third quarter, from an “advance” 3.5% to 2.8% (it was ultimately determined to be 2.2%) — in any event, it was the first positive print we’d seen in some time.
  2. The National Bureau of Economic Research’s Business Cycle Dating Committee (BCDC) — the folks who date recessions — posted, with no fanfare whatsoever, a very interesting (and undated) statement [1] at their website (the NBER provided me with the date upon a quick inquiry).

As I read the second paragraph of their brief statement, I’m left wondering if the NBER is angling for the (very real, IMO) possibility of a double-dip — which in this case they might well consider one long recession, notwithstanding a “short period of expansion.” Read for yourself (emphasis mine):

In both recessions and expansions, brief reversals in economic activity may occur—a recession may include a short period of expansion followed by further decline; an expansion may include a short period of contraction followed by further growth. The Committee applies its judgment based on the above definitions of recessions and expansions and has no fixed rule to determine whether a contraction is only a short interruption of an expansion, or an expansion is only a short interruption of a contraction. The most recent example of such a judgment that was less than obvious was in 1980-1982, when the Committee determined that the contraction that began in 1981 was not a continuation of the one that began in 1980, but rather a separate full recession.

The note concludes:

The Committee does not have a fixed definition of economic activity. It examines and compares the behavior of various measures of broad activity: real GDP measured on the product and income sides, economy-wide employment, and real income. The Committee also may consider indicators that do not cover the entire economy, such as real sales and the Federal Reserve’s index of industrial production (IP). The Committee’s use of these indicators in conjunction with the broad measures recognizes the issue of double-counting of sectors included in both those indicators and the broad measures. Still, a well-defined peak or trough in real sales or IP might help to determine the overall peak or trough dates, particularly if the economy-wide indicators are in conflict or do not have well-defined peaks or troughs.

Now, when I look at the St. Louis Fed’s “Tracking the Recession [2]” page, I don’t see much that seems particularly “well-defined,” except for Industrial Production (IP). And many other indicators — first, second and third tier — are clearly “in conflict.” At the St. Louis Fed’s page, other than IP, I see three flatlines for Employment, Real Retail Sales and Real Income.

I’d note that the NBER does not care where growth comes from. Several weeks before their November statement, I queried some members of the BCDC as to how they would view stimulus-induced growth. This is how one replied (speaking only for himself, and including the classic economist’s “on the one hand, on the other”):

On the one hand, we feel no need to strip out the effect of government spending to see what the private sector is doing. G is just as much a part of GDP as C+I+X-M.

On the other hand, there is always the danger that the economy might dip back down again in 2010 when the fiscal stimulus fades out, in which case that would probably count as part of the same recession as 2007-09. So in that sense, yes, the expansion has to “take root” organically.

I’d also note this comment [3] from BCDC member professor Martin Feldstein on December 17, 2009:

“The recession isn’t over,” Martin Feldstein, former president of the Cambridge, Massachusetts-based NBER and a member of its Business Cycle Dating Committee, said in an interview with Bloomberg Radio today. “2010 is going to be a very weak year,” Feldstein also said, as American consumers limit spending and home prices may resume their slide.

I’m on record as saying the BCDC will take its sweet time with this one, and their November 2009 statement, in addition to Feldstein’s, gives me no reason to change that point of view. Their announcement — or lack thereof — will likely be a factor in the November mid-term elections (one wonders if there were any political considerations associated with their post-election, December 2008 announcement of a recession having begun one year prior).


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2010/01/nber-intrigue-2/

URLs in this post:

[1] posted, with no fanfare whatsoever, a very interesting (and undated) statement: http://www.nber.org/cycles/general_statement.html

[2] Tracking the Recession: http://research.stlouisfed.com/recession/indicators.html

[3] note this comment: http://www.businessweek.com/bwdaily/dnflash/content/dec2009/db20091217_973622.htm

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