Recession over? NBER says not yet….

Jeff Frankel NBER Recession dating committee member declared in his blog that recession is over in US on 5 Apr 2010. As expected, there was a huge build up that NBER would soon declare recession is over. Robert Hall, Chairman of the committee also declared recession is over in this interview on the same day.

However, NBER in its recent statement said not yet. It is early days still:

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.

Two of the committee members, Jeff Frankel and Robert Gordon speak on the same:

Frankel answers questions via nice FAQs (lots of links as well):

Q: What importance should individual investors, workers and consumers attach to this announcement by the NBER?

A:  Probably none.

Q:  Why would the Business Cycle Dating Committee put out such a statement, if it was a non-event?

A:   The press was bound to find out that there had been an in-person meeting (as it did), and so the confusion created by issuing the statement was probably less than the confusion that would have been created by remaining mysteriously silent.

Q:  Is this the first time the Committee has issued a statement to say that it hasn’t reached a decision?   Shouldn’t it be interpreted as suggesting that we are still in the recession?

A:   No, and no.

Read the whole thing. He points to Robert Gordon’s dissent note as well. WSJ Blog also has a post from Gordon.

How to look at all this dissent business?

Q:    Obviously you expressed in the Committee meeting last Thursday your view that the recession was probably over and others expressed their views that it wasn’t?

A:    We have a standing rule not to characterize the views or remarks of others in our deliberations.    And in this case I also am not describing anything I said in the meeting. 

Q:     But there is a glaring difference between your views, particularly as expressed in your blogpost of April 5, which was widely reported,  and the Committee’s public statement that it was too soon to call an end to the recession.   Obviously there is a big gap between you and the majority of the Committee.

A:     I can see how it looks that way, but there is not necessarily a gap anywhere near as large as you think.   The decision is a matter of probabilities.    There is, as always, a chance – greater than 1% –  that the economy could go into a steep nose dive tomorrow.    In that hypothetical and unlikely event, the Committee would have to decide whether the new downturn counted as a second recession, or whether it should be considered part of the recession of 2007-09.  In the latter case, we would have made a mistake if we had  already declared a trough in 2009.    We would have to retract the trough statement.      This is an excellent argument for waiting until we can answer that hypothetical question more definitively.  It is an argument I am comfortable with. 

Q:  Would it be so bad if the Committee had to revise the date of the trough after the fact?

A:  We have never done it before.   We explain ad infinitum that the role of the committee is to be definitive, not to be first, in calling turning points.  Thus our raison d’etre would be undermined, a bit, if we got into the habit of revising dates after the fact.

Q:   Another member of the Committee, Robert Gordon, is willing to say on the record that he disagrees strongly with the Committee’s decision to wait.  In fact he has now posted a dissenting statement.

A:  Yes.  But I am not willing to say the same.

Q: Yet you went public before he did, with your view that the recession was probably over.

A: I have a blog.

Interesting. Each member is free to express his views. The committee decision could be different from the members outlook.

On reading I realised, it is designed much like Monetary Policy Committee (I don’t know but it could be that MPC is designed like the NBER committees as NBER is much older). In Alan Blinder’s classification, it is Individualistic committee like Bank of England MPC. Each member can freely express his views. Though I don’t think there is any voting in NBER committee to arrive at a consensus.

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