VideoSome say the current recession is a noisy newborn, even if it arrived in recent months with screams and yelps of pain. But the National Bureau of Economic Research says it is already a churlish one-year-old this month.
The NBER, a private nonprofit research organization dedicated to promoting understanding of the economy, maintains a chronology of the beginning and end dates of U.S. recessions. And its Business Cycle Dating Committee said in a report that December 2007 marked the end of the expansion that began in November 2001, which works out to a 73-month relative spree. Still, that was well short of the previous expansion of the 1990s, which lasted 120 months.
The group defines recession as a significant decline in economic activity spread across the economy, lasting more than a few months, and normally visible in production, employment, real income, and other indicators. One 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.
Although the financial press often defines recession as two consecutive quarters of decline in real GDP, the NBER noted that most recessions identified by its procedures do consist of two or more quarters of declining real GDP, although that is not always the case. For example, the last recession, in 2001, did not include two consecutive quarters of decline. And as of the date of the committee's meeting, this economy had not yet experienced two consecutive quarters of decline.
Because a recession is a broad contraction of the economy � not confined to one sector � the committee explained that it emphasizes economy-wide measures of economic activity. The committee said it believes that domestic production and employment are the primary conceptual measures of economic activity.
It also said the payroll employment measure, which is based on a large survey of employers, is the most reliable comprehensive estimate of employment. This series reached a peak in December 2007 and has declined every month since then.
The committee also said it 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,” it added.
However, because the measurement on the product and income sides proceeds somewhat independently, the two actual measures differ by a statistical discrepancy. For example, the product-side estimates fell slightly in the fourth quarter of 2007, rose slightly in the first quarter of this year, rose again the following three-month period, and fell slightly in the third quarter.
The income-side estimates reached their peak in the third quarter of 2007, fell slightly the following two quarters, rose slightly in the second quarter of 2008 to a level below its peak in the third quarter of 2007, and fell again in the third quarter of 2008. "Thus, the currently available estimates of quarterly aggregate real domestic production do not speak clearly about the date of a peak in activity," the NBER noted.
It added that 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 group also pointed out that unemployment is generally a lagging indicator, particularly after the trough in economic activity determined by the NBER. For example, the unemployment rate peaked 15 months after the NBER trough month in the 1990-91 recession and 19 months after the NBER trough month in the 2001 recession. “The unemployment rate (which the committee does not use) tends to lag behind employment (which the committee does use) on account of variations in labor-force participation,” it added.
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