NBER: Recession Ended June 2009

The National Bureau of Economic Research, the arbiter of the start and end dates of a recession, determined that the recession that began in December 2007 ended in June 2009.

The business-cycle dating committee met by phone on Sunday and came to the determination. “In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month,” the committee said in a statement. The 2007-2009 recession is the longest in the post-WWII period. (Read related article.)

The decision by the NBER means that any future downturn in the economy would be considered a new recession and not a continuation of the recession that began in 2007.

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Double Dip Recession?

The closest we've seen to a "double dip" was in the early 1980s - and the NBER dated those as two separate recessions...

Based on these graphs and the NBER memos, it would seem pretty easy to date two recessions in the early '80s. However, if another recession starts this year, it will almost certainly be dated as a continuation of the "great recession" that started in 2007.

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Is the Recession Over?

The Business Cycle Dating Committee of the National Bureau of Economic Research met at the organization’s headquarters in Cambridge, Massachusetts, on April 8, 2010. The committee reviewed the most recent data for all indicators relevant to the determination of a possible date of the trough in economic activity marking the end of the recession that began in December 2007. The trough date would identify the end of contraction and the beginning of expansion. Although most indicators have turned up, the committee decided that the determination of the trough date on the basis of current data would be premature. 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.

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My thoughts: Many sources and conventional wisdom are pointing to the recession ending in June 2009. There seems to be some doubt coming from the NBER. NBER also takes it time, often over 1 year before declaring a trough. Likely we will have a double dip or a very long recession. Jobs seem to be the key.

NBER Report

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.

read the report and FAQs

NBER Declares Recession Began in December 2007

The National Bureau of Economic Research said Monday that the U.S. has been in a recession since December 2007, making official what most Americans have already believed about the state of the economy .

The NBER is a private group of leading economists charged with dating the start and end of economic downturns. It typically takes a long time after the start of a recession to declare its start because of the need to look at final readings of various economic measures.

read the CNN story

NBER and Recessions

Many people think the definition of a recession is two consecutive quarters of decline in the gross domestic product. But that's a misperception. Hall and his colleagues will look beyond such simple metrics, weighing monthly GDP estimates, employment data, income, industrial production, and other factors. To call a recession, they'll look for clear signs of "a significant decline in economic activity spread across the economy, lasting more than a few months."

Any call, if it comes, is going to take a while. The NBER usually takes 6 to 18 months to decide when a recession starts or ends. Hall's committee didn't announce the end of the 2001 recession until a full 20 months after the fact.

read the entire article

Oil and GDP

The standard equation for calculating GDP is C+I+G+(X-M)

C= personal consumption expenditures
I= gross investments
G= government spending
X= exports
M= imports

In periods of prosperity it is generally considerable desirable to have GDP increasing between 3-5% on an annual basis. Over 5% is considered unsustainable and inflationary. Under 3% is considered weak growth and possibly recessionary.

A recession is typically defined in textbooks as two consecutive quarters of declining GDP. The National Bureau of Economic Research (NBER), the organization that officially dates recessions uses a slightly different method. Read about it here.

Currently we have a $14 trillion economy that had a growth rate of 0.6% in the 4th quarter of 2007. We are still in the 1st quarter of 2008, yet the media and most people seem to be convinced that we are in a recession already. Maybe, only time will tell.

Predicting recessions and the economic future is not an exact science. Numerous thing could occur to greatly improve or diminish the economic outlook on a daily basis. There are many factors to consider.

Back to GDP. If GDP is increasing it is generally considered good. Slow growth has a lot of people worried but it is still growth.

But if oil stays at $100 a barrel for the next 12 months, consumers will have shelled out an extra $100 billion on oil by next year. That's an extra $100 billion not being spent at the mall, mega-mart or multiplex.

"The entire stimulus package could be drained by higher energy costs," Lafakis said, referring to the $120 billion lawmakers will refund to taxpayers in an effort to keep the economy out of recession. "That has the potential to turn a mild recession into something more dark."

Of course, high oil prices are not the only thing weighing on consumer spending, which accounts for about two-thirds of all U.S. economic activity. Declining home values mean people can't access cash through a home equity loan or profit from higher sale prices. In addition, the economy is shedding jobs, and unemployed people tend to spend less money.

"On its own, $100 oil wouldn't pull the economy into recession," said Beth Ann Bovino, a senior economist at Standard and Poor's. "But given the other factors, it's just another shoe to drop."

from CNN

Now people are being told that it is how consumers are spending their money that matters. If you spend money on gas or at the mall GDP does not change. However, it does have a broader economic impact that is not immediately reflected in GDP numbers.

The main point is you can have "bad" economic times with a recession. Also, a recession is not necessarily bad for everyone.

People also should save money for the unexpected and unpredictable future events.

New Paper: Designing Institutions to Deal with Terrorism in the United States

Designing Institutions to Deal with Terrorism in the United States
Martin S. Feldstein
President and Chief Executive Officer
National Bureau of Economic Research

ABSTRACT

The explosion in the 21st century of terrorist activities by Islamic radicals in the United States, Europe and Asia requires reforming the institutions for domestic counterterrorism (CT) and new international relations among individual national CT organizations. This paper discusses the institutional reforms for CT in the United States, focusing particularly on the changes in the FBI. These changes are compared with the way that the British CT activities of the MI5 and MI6 have evolved in response to terrorism in Britain. The paper also discusses the reasons why there is strong cooperation among the CT activities of all the major governments and with the United States in particular, even when those governments do not agree about military cooperation or about the use of economic sanctions.

Click here.