Sticking up for NBER

People are falling out of trees to criticize NBER's new U.S. recession call, given that it is coming 12 months after said recession started in December 2007. The following chart (adapted partly from a Schwab figure) more or less supports the cynicism, with economists, as the joke goes, forecasting seven of the last five recessions -- and doing it late, as well..

Two things, however, in defense of NBER. First, NBER's job is a historical one, not strictly an economic one: It is, by design, supposed to wait until there is no more uncertainty about recession dates. Its job isn't to provide traders with short-selling ideas.

Second, and this is often missed, there just isn't that much data to go on here. We have precisely six recession dated by the NBER cycle committee, including today's, and one of which it never dated at all. Saying that NBER is always late, or marks a bottom, or whatever, is extrapolating from virtually no data. People saying so should be ignored.

Comments

[Steven Hansen:]

on 01 december 2008 the nber called a recession 12 months it started. there was no new data for them to see that was not available many months ago. here is some examples of the peak month of various indicators which NBER use to determine a recession:

Real Manufacturing sales: June 2007
Real Wholesale-Retail trade sales: September 2007
Real Income: October 2007
Employment: December 2007
Industrial Production: January 2008

this is one case where the NBER made a mistake. we had a slight economic recovery between march 2008 and june 2008 - although this recovery did not reach the previous peak. the real economic downturn did not happen until july 2009.

just one more look at gdp numbers to illustrate my point:

2007q3 6.3% 4.8%
2007q4 2.3% -0.2%
2008q1 3.5% 0.9%
2008q2 4.1% 2.8%
2008q3 3.6% -0.5%

the second column is gdp growth in percent, while the third column is gdp growth expressed in the year 2000 chained dollars (source BEA).

another way to look at this is that we had a one quarter recession, two quarters of recovery, and then beginning in the third quarter of 2008 the recession kicked in.

steven hansen

2008 Dec 01 11:44 PM