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See related article from Stirling Newberry.
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.
The committee 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. However, because the measurement on the product and income sides proceeds somewhat independently, the two actual measures differ by a statistical discrepancy. The product-side estimates fell slightly in 2007Q4, rose slightly in 2008Q1, rose again in 2008Q2, and fell slightly in 2008Q3. The income-side estimates reached their peak in 2007Q3, fell slightly in 2007Q4 and 2008Q1, rose slightly in 2008Q2 to a level below its peak in 2007Q3, and fell again in 2008Q3. Thus, the currently available estimates of quarterly aggregate real domestic production do not speak clearly about the date of a peak in activity.
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 committee determined that the decline in economic activity in 2008 met the standard for a recession, as set forth in the second paragraph of this document. All evidence other than the ambiguous movements of the quarterly product-side measure of domestic production confirmed that conclusion. Many of these indicators, including monthly data on the largest component of GDP, consumption, have declined sharply in recent months.
The committee’s primary role is to maintain a monthly chronology of the business cycle. For this purpose, the committee mainly relies on monthly indicators. It also considers quarterly indicators and maintains a quarterly chronology. In its deliberations, the committee relied on a number of monthly and quarterly economic indicators published by government agencies. The Appendix to this announcement lists these indicators and their sources. The Appendix also describes the calculations required to reproduce the series that the NBER committee examined in its deliberations.
The Month of the Peak
The committee identified December 2007 as the peak month, after determining that the subsequent decline in economic activity was large enough to qualify as a recession.
Payroll employment, the number of filled jobs in the economy based on the Bureau of Labor Statistics’ large survey of employers, reached a peak in December 2007 and has declined in every month since then. An alternative measure of employment, measured by the BLS’s household survey, reached a peak in November 2007, declined early in 2008, expanded temporarily in April to a level below its November 2007 peak, and has declined in every month since April 2008. For a discussion of the difference between payroll and household survey employment measures, see Mary Bowler and Teresa L. Morisi, “Understanding the Employment Measures from the CPS and CES Surveys,” Monthly Labor Review, February 2006, pp. 23–38.
The committee uses real personal income less transfer payments from the Bureau of Economic Analysis as a monthly measure of output. The deduction of transfer payments places the data closer to the desired measure, real gross domestic income. To adjust personal income less transfer payments from nominal to real terms (that is, to remove the effects of price changes), the committee uses the deflator for gross domestic product. Because this deflator is only available quarterly, the committee interpolates the published series to approximate a monthly price index for GDP. The resulting monthly measure of real personal income less transfers is an imperfect measure of monthly real output because of definitional differences between personal income less transfers and gross national income and because we use the interpolated price index. Our measure of real personal income less transfers peaked in December 2007, displayed a zig-zag pattern from then until June 2008 at levels slightly below the December 2007 peak, and has generally declined since June.
Real manufacturing and wholesale-retail trade sales from the Census Department is another monthly indicator of output. It is an imperfect measure of the production of goods and services for at least three reasons. First, it covers only goods and not services. Second, it does not deduct the sales of imported goods. Because the real value of imports declined substantially over the relevant period, the measure understates the growth of output. Third, the government does not publish a price index corresponding to the coverage of the measure. The committee uses the same interpolated GDP deflator as discussed above. Real manufacturing and wholesale-retail trade sales reached a well-defined peak in June 2008.
The last monthly measure of production is the Federal Reserve Board’s index of industrial production. This measure has quite restricted coverage—it includes manufacturing, mining, and utilities but excludes all services and government. Industrial production peaked in January 2008, fell through May 2008, rose slightly in June and July, and then fell substantially from July to September. It rose somewhat in October with the resumption of oil production disturbed by hurricanes in the previous month. The October value of the industrial production index remained a substantial 4.7 percent below its value in January 2008.
The committee noted that the behavior of the quarterly estimates of aggregate production was not inconsistent with a peak in late 2007. The income-side estimate of output reached its peak in the third quarter of 2007. The product-side estimate reached a temporary peak in the same quarter, but rose to a higher level in the second quarter of 2008.
The Quarter of the Peak
The committee determined that the peak quarter of economic activity was the fourth quarter of 2007. When the monthly peak occurs in the last month of a quarter, the NBER’s long-standing procedures dates the quarterly peak either in the quarter containing the monthly peak or in the subsequent quarter. Thus, the committee could have dated the quarterly peak in 2008Q1 if it had determined that economic activity was higher in that quarter than in 2007Q4. However, the committee determined that this was not the case. Most notably, both payroll employment and the income-side estimate of domestic production were lower in 2008Q1 than in 2007Q4, and the product-side estimate of domestic production was only slightly higher. The committee found that the peak quarter was the one containing the peak month, 2007Q4.
Further Comments
Although the indicators described above are the most important measures considered by the NBER in developing its business cycle chronology, there is no fixed rule about which other measures may contribute information to the process in any particular episode.
Committee members are: Robert Hall, Stanford University (chair); Martin Feldstein, Harvard University and NBER President Emeritus; Jeffrey Frankel, Harvard University; Robert Gordon, Northwestern University; James Poterba, MIT and NBER President; David Romer, University of California, Berkeley; and Victor Zarnowitz, the Conference Board. Christina Romer of the University of California, Berkeley, resigned from the committee on November 25, 2008, and did not participate in its deliberations of November 28.
6 Comments
Thanks guys. We kinda noticed.
As I pointed out in my usually caustic manner, yes, many of us already knew that.My thoughts on this earth shaking revelation?
Nice job Sparky, Captain Obvious salutes you.
BushCo has known all this all along and refuses to fess up.
for years real wages have gone done, for years real investments have been deminished, for years real assets have gone down, for years american based investments have been disapearing
this has not been a “recession” and it hasn’t been since “2007″
this is a clear depression and it’s been going on for at least two and probably three years
Yep.Yep.Yep.
It’s not in the politicians best interest to acknowledge failure. Even when people are committing suicide because of the economic times…
I’d say we’ve been in a recession since around August 2000. I say this because I was finishing up my degree, and in May, 2000, there were plenty of jobs starting at $25,000 and by the time I graduated, a lot of those opportunities had dried up.
So, in my guesstimate, that’s when the real recession began. At least for Indiana. Our factory jobs were disappearing faster than you could blink.
How fitting: “Running on Empty” by Jackson Browne just came on the radio…
Take a look at the dow at bush’s first day in office then take look at the price today. Then figure how much the dollar has declined as a percentage subtract that from the dow.
Quite honestly I think we have been in a recession much longer than a year. After all the business *cough* growth that has happened is merely trying to keep up with the decline in the value of the dollar.
Gas, computer companies etc what ever raised prices as the dollar’s value declined. there was no or very little growth.
Bush’s last day in office will be the time to judge the market. Assuming Obama is smart he will look at how recessions, unemployment etc are calculated and go over the actual numbers which I think are cooked.
Me, too–politicians like to use the “low” unemployment stats to prove how great they are.
Here in Indiana, a factory had 300 job openings. I’m told 4,000 put in applications.
There’s a radio call-in program in my area that people sell or swap items or advertise lost pets. In recent weeks, a lady called in begging for work for her husband, another lady called in looking for help to buy Christmas gifts for her children. And this week, someone called for their a neighbor who moved in without beds for her children.