Now That It's Official, When Will This Recession End?

The Business Cycle Dating Committee of the National Bureau of Economic Research, a non-profit foundation, announced that the last economic expansion peaked in December 2007. Read the full report.

I've been asked frequently why it takes so long for an official determination. Here's the story. The government does not define recessions. Back in the 1920s, the NBER began a research program into our economic history, resulting in a set of dates of economic peaks and troughs. NBER has continued to update this chronology. NBER is an academic organization, and its business cycle dating program is a service to the scholarly research community. It is not meant to be a current commentary on the economy nor a forecast of future activity.

The committee wrestles with two issues when it sees a decline in economic activity. First, it asks if the downturn we're seeing will survive the inevitable data revisions. Second, if economic activity turns up tomorrow, will the downturn be significant enough that we will call this event a recession. Although it has seemed obvious to many that this is a recession, that's because no one expected a sudden turnaround. However, the committee does not use such a forecast in its determination. And being academics, there's really no hurry.

While wrestling with these two issues, the committee also deals with data that may be telling different stories. One reason it has not been obvious to me that we're in recession is that first and second quarter GDP growth were positive, with Q2 pretty strong. It's hard to see such strong growth in the middle of a recession. However, the monthly data that the committee focuses on all showed pronounced peaks.

So, when will the recession end? My current forecast is that we hit bottom around March 2009. If that's the case, the recession will have lasted 15 months, making it the third longest of the post-World War II era. It would only be one month shorter than the two longest recessions of that time period (1973-75 and 1981-82).

Comments

[Steven Hansen:]

Bill, why March 2009? what formula or historical projections are you using? you may be right but your track record for predicting this recession has not been good so far:
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all these articles were written by you when we were in a recession already. now we are in a declared recession, and you are saying we will be out of it in march.

in fairness, i believe the nber made a mistake declaring the recession began last year. i think the data supports july 2008 but hell, i am not an economist.

i constantly plow through economic data. i cannot see an economic pump that would work as quickly as march 2009 to stop the decline. as long as we are guessing, i would think the decline could be over as early as the third or fourth quarter of 2009 - but again i am no economist and i am just guessing based on the amount of unwinding and deleveraging.

tell me you have some data to support economic recovery in march 2009.

2008 Dec 02 04:14 AM

[axelrod608:]

2012. The end is in late 2012.

2008 Dec 02 12:04 PM

[WAKEUP:]

Here we go, again. WHEN will "official" financial writers get it? The ramifications of this recession/depression are so large that the United States' population will be feeling its effects for at least ten years. Why? Because once a standard of living has been compromised, by home foreclosure, job loss, and generally depleted assets which once belonged to a particular citizen, it takes a VERY, VERY long time to recover. WHY? Think about it. WHERE is Mr. John Doe going to get the CAPITAL to start over? Remember, he's BROKE. Mommy and Daddy are no longer around to dish out that nice down payment on a house. Mr. Doe's credit rating is in the toilet. Mrs. Doe can't find work, as a teacher's assistant. Mr. Doe is now a draftsman (and fearfully thankful to have that job), instead of being an engineer as he once was, before the s--- hit the fan. Mr. and Mrs. Doe are (by this time) struggling mightily to help Junior pay his college expenses; they are renting a house, and cannot IMAGINE having the money for a down payment. Mr. and Mrs. Doe are racking up bills at the local auto repair shop, to keep those two ten-year old Toyotas running. Both Does worry continually about what they will do if either of them gets sick, requiring expensive medical care. If they are lucky, they will have some 50%-pay reimbursement-style medical coverage. How will they pay the other 50%? answer: They won't pay, because they CAN'T pay. Those medical bills will show up on their credit report, putting them even further behind the money curve. And on and on it will go. Remember, it took all the Doe families YEARS to get to where they were, before this financial tidal wave got to them. None of that accumulated wealth will be available to them as they START OVER. Ten years. (If they are relatively lucky.)

2008 Dec 02 03:01 PM

[jepittman:]

The author provides no data to back up his forcast of the recession ending in march. He has a very interesting explanation of the NBER and their role in determining beginning and ending points for recessions. As for his forcast of march it sounds plausible but maybe a little early.

2008 Dec 02 09:47 PM