Debating the Dating of the Business Cycle

Is the recession over? No, or at least not officially, according to the National Bureau of Economic Research, the non-profit group that makes the official pronouncements on business cycle dates. In a statement yesterday, NBER said it was too soon to mark the end of the contraction that began in December 2007.

“Although most indicators have turned up,” the NBER explained, “the committee decided that the determination of the trough date on the basis of current data would be premature.” The press release went on to say,

Many indicators are quite preliminary at this time and will be revised in coming months. The committee acts only on the basis of actual indicators and does not rely on forecasts in making its determination of the dates of peaks and troughs in economic activity. The committee did review data relating to the date of the peak, previously determined to have occurred in December 2007, marking the onset of the recent recession. The committee reaffirmed that peak date.

But one panel member on NBER’s Business Cycle Dating Committee thinks otherwise. Economist Robert Gordon, who teaches at Northwestern, says that “it is obvious that the recession is over,” according to Bloomberg BusinessWeek. The U.S. “is enjoying strong upward momentum that is evident every day in the announcement of retail sales, service-sector production, and almost everything else.”

So, why the delay in declaring the finale to the recession? In a word, caution. “The committee is very careful to guard against surprises,” the chairman of the Business Cycle Dating Committee told The Wall Street Journal. “We wait until the numbers come in even if we have a fair level of certainty about what they’re going to be,” explained Stanford University economist Robert Hall.

Meantime, Ken Goldstein, an economist at the Conference Board, summed up the thinking of some in the dismal science: “While we, the professional egghead economists, feel we are in a recovery and that there is only a small chance we are wrong, consumers are still saving and not spending, as if they think this thing is not completely over.”

So, is it over? Probably, although that doesn’t mean the danger’s gone. It’s too early to rule out the possibility of a fresh round of weakness in the economy later this year, as we discussed here. Regardless of what’s coming, the clues that suggested the recession was over have been bubbling for nearly a year. As early as June 2009, for instance, we considered the case for thinking that the economic contraction was at or near an end.

Officially speaking, however, it still ain’t over till the NBER says it’s over. Does it matter? Probably not, although that’s debatable too. At least one economist thinks there may be a risk in the absence of the rhetoric that everyone wants to hear. “By not calling an end to the recession,” warned MarketWatch.com’s chief economist Irwin Kellner, “the NBER might inadvertently cause economic policy to remain too easy too long.”


Originally published at The Capital Spectator and reproduced here with the author’s permission. 

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