Enough With The Pundits! Recession/Recovery Defined --- Have Your Say!
There are always an awful lot of differing recession/recovery yardsticks out there.
_____________________________________________________________________________
Some background:
Many laypeople and even some economists insist that an economy is only in recession when it is experiencing back-to-back quarterly declines its real GDP.
Other organizations and many more US economists track recessions/recoveries using methodology employed by the NBER: The committee places particular emphasis on two monthly measures of activity across the entire economy:
(1) personal income less transfer payments, in real terms
(2) employment.
In addition, the committee refers to two indicators with coverage primarily of manufacturing and goods:
(3) industrial production
(4) the volume of sales of the manufacturing and wholesale-retail sectors adjusted for price changes.
The committee also looks at monthly estimates of real GDP such as those prepared by Macroeconomic Advisers (see http://www.macroadvisers.com). Although these indicators are the most important measures considered by the NBER in developing its business cycle chronology, there is no fixed rule about which other measures contribute information to the process. http://www.nber.org/cycles/recessions.html
Following GDP is pleasant, as an academic mental masturbatory exercise, but in practice, using GDP has long been a huge problem in ascertaining peaks and troughs in the business cycle. In no small part, this is because GDP data is continually revised. Up. Down. Sideways. In. Out. Mad cows.
When it comes to GDP Madness, consider these three heavyweight articles that came out in the very same year (2004):
CNN: Did recession begin in 2000?
Group that dates economic cycles considers extending most recent downturn; possible boon for Bush.
January 22, 2004 The business cycle dating committee of the National Bureau of Economic Research, a private research group, will soon decide whether or not to change the starting date of the latest recession from March 2001, its current estimated starting month, NBER spokeswoman Donna Zerwitz told CNN/Money...
"The committee is waiting for more data at this point in time, and there might be changes to the historical dates of other recessions," Zerwitz said, noting the committee has set dates for every U.S. recession and expansion since 1854.
She added that, while the revision could be as dramatic as moving the starting date of the recession all the way back to November 2000, it could also be less drastic -- moving the date back to February 2001, when payrolls outside the farm sector peaked, for example, according to Labor Department measures...
Achuthan of ECRI said he worried that focusing on GDP could give less importance to a critical sector of the economy -- the job market. Moore and other founding members of the NBER committee focused on jobs, he said, because they often influence the other indicators -- if unemployment is rising, then incomes, output and sales typically fall, as well.
"That vicious cycle is the definition of a recession, and that's why it's important that the definition of a recession captures that cycle, "Achuthan said. "GDP alone doesn't do that."
USATODAY: Was the 2001 slowdown really a recession?
Posted 7/30/2004 The fight over whether the last recession started when President Bush was in office or during the presidency of Bill Clinton just got more complicated.
It turns out that using newly revised data, maybe the 2001 slowdown wasn't a recession at all.
The Commerce Department's Bureau of Economic Analysis released updated figures Friday on the quarterly movement of gross domestic product for 2001, 2002 and 2003.
According to that revised data, GDP did not decline for three consecutive quarters in 2001 as the old data showed.
The new data show GDP falling at an annual rate of 0.5% in the first quarter of 2001, then rising at an annual rate of 1.2% in the second quarter and falling again at a rate of 1.4% in the third quarter.
The old data had GDP falling at annual rates of 0.2% in the first quarter, 0.6% in the second quarter and 1.3% in the third quarter.
That would fit the oft-cited shorthand definition of a recession as a downturn in economic activity represented by at least two consecutive quarters of falling GDP. It also matched the period in which the National Bureau of Economic Research (NBER), which uses a more complicated formula, said the country was in a recession.
The NBER's business cycle dating committee, the recognized arbiter of when recessions begin and end, declared that the country's last downturn began in March 2001 and ended in November that year.
That puts the start of the recession two months after Bush took office. The president and others in his administration have argued that the recession actually began earlier, noting that last year's GDP revision showed that economic output fell at an annual rate of 0.5% in the third quarter 2000, which previously had been listed as positive.
Armed with a negative third quarter in 2000, Republicans have been arguing that they "inherited" a recession. Bush's annual economic report in February contends that the last recession probably began some time in the final three months of 2000...
NRO: A Recession to Remember
Business-investment hemorrhaged in 2000-01 - don’t forget it.
August 04, 2004 Larry Kudlow
It was Santayana who said, “Those who cannot remember the past are condemned to repeat it.” Let’s hope Alan Greenspan is in a remembering frame of mind.
The Commerce Department has revised data for gross domestic product, sparking a minor debate as to whether a recession actually occurred in 2001. Either way, some now argue, if there was a recession, it was one of the mildest on record.
That’s not only utter nonsense, it shows a sad lack of short-term memory.
There was a recession in 2000-01 and it was deep. But you have to look behind the headline real GDP numbers to understand it. When you do that, you find that a very unusual set of events were at work four years ago. Events worth remembering today.
Consumer spending never once declined in the recession of 2000-01. This is because middle-class income actually increased by nearly 5 percent between 2000 and 2002, according to the latest IRS statistics. This fact runs completely counter to the Kerry-Edwards argument about a “middle-class squeeze.”
Still, overall individual income declined 5 percent during this period. Why? Upper-end income suffered mightily. The top tax brackets lost about 28 percent of their income, on average, largely from the stock market crash and the fall in high-paying jobs. Twelve percent of the folks who fought their way above $200,000 a year slipped below that level in 2002.
At the rarified income level of $10 million or more, those with the highest propensity to save and invest lost a stunning 63 percent of their income during 2000-02. Total capital-gains income fell by 29 percent, and dividend income dropped 17 percent. When Bill Clinton recently told the Democrats in Boston that top tax-rate payers don’t need the extra money, he was sorely uninformed.
It was the investment-side of the economy that collapsed in 2000-02. But without investment funding, economic growth was null and void. For example, capital-goods investment (equipment and software) fell in eight of ten quarters between mid-2000 and the end of 2002, with six of those declines coming consecutively. Industrial production declined for six straight quarters. When measured against year-ago levels, after-tax corporate profits declined in seven straight quarters.
Surely, a 78 percent drop in the Nasdaq and a near 40 percent fall in the broader stock indexes deserve the lion’s share of blame for this business-investment recession. In the new economy, the stock market is essential to the investment-funding of business and the income- and wealth-creating activities of the 50 percent of the adult population called the investor class. When the market cost of capital rises sharply, as it did in 2000-02, investment activity hemorrhages...
All sorts of economists are now waiting for GDP to turn positive so that they can declare the end to this most recent recession. The last quarter for which we have any information, Jan-March of this year, came in at a very preliminary estimate of -5.7%. Guesses for the current quarter are around -1.0% to -3.0%. Most econs see GDP turning positive sometime in the third quarter (July/August/September).
So... if GDP is such an oft-revised data set, that has proven time and time again all but useless for recognizing when one is in recession, what, then, should be the #1 indicator that recession has ended?
___________________________________________________________________
What do you think is the best indicator recovery has arrived?
Poll Best Indicator Recovery Has Begun (Recession Over)
_____________________________________________________________________________
Some background:
Many laypeople and even some economists insist that an economy is only in recession when it is experiencing back-to-back quarterly declines its real GDP.
Other organizations and many more US economists track recessions/recoveries using methodology employed by the NBER: The committee places particular emphasis on two monthly measures of activity across the entire economy:
(1) personal income less transfer payments, in real terms
(2) employment.
In addition, the committee refers to two indicators with coverage primarily of manufacturing and goods:
(3) industrial production
(4) the volume of sales of the manufacturing and wholesale-retail sectors adjusted for price changes.
The committee also looks at monthly estimates of real GDP such as those prepared by Macroeconomic Advisers (see http://www.macroadvisers.com). Although these indicators are the most important measures considered by the NBER in developing its business cycle chronology, there is no fixed rule about which other measures contribute information to the process. http://www.nber.org/cycles/recessions.html
Following GDP is pleasant, as an academic mental masturbatory exercise, but in practice, using GDP has long been a huge problem in ascertaining peaks and troughs in the business cycle. In no small part, this is because GDP data is continually revised. Up. Down. Sideways. In. Out. Mad cows.
When it comes to GDP Madness, consider these three heavyweight articles that came out in the very same year (2004):
CNN: Did recession begin in 2000?
Group that dates economic cycles considers extending most recent downturn; possible boon for Bush.
January 22, 2004 The business cycle dating committee of the National Bureau of Economic Research, a private research group, will soon decide whether or not to change the starting date of the latest recession from March 2001, its current estimated starting month, NBER spokeswoman Donna Zerwitz told CNN/Money...
"The committee is waiting for more data at this point in time, and there might be changes to the historical dates of other recessions," Zerwitz said, noting the committee has set dates for every U.S. recession and expansion since 1854.
She added that, while the revision could be as dramatic as moving the starting date of the recession all the way back to November 2000, it could also be less drastic -- moving the date back to February 2001, when payrolls outside the farm sector peaked, for example, according to Labor Department measures...
Achuthan of ECRI said he worried that focusing on GDP could give less importance to a critical sector of the economy -- the job market. Moore and other founding members of the NBER committee focused on jobs, he said, because they often influence the other indicators -- if unemployment is rising, then incomes, output and sales typically fall, as well.
"That vicious cycle is the definition of a recession, and that's why it's important that the definition of a recession captures that cycle, "Achuthan said. "GDP alone doesn't do that."
USATODAY: Was the 2001 slowdown really a recession?
Posted 7/30/2004 The fight over whether the last recession started when President Bush was in office or during the presidency of Bill Clinton just got more complicated.
It turns out that using newly revised data, maybe the 2001 slowdown wasn't a recession at all.
The Commerce Department's Bureau of Economic Analysis released updated figures Friday on the quarterly movement of gross domestic product for 2001, 2002 and 2003.
According to that revised data, GDP did not decline for three consecutive quarters in 2001 as the old data showed.
The new data show GDP falling at an annual rate of 0.5% in the first quarter of 2001, then rising at an annual rate of 1.2% in the second quarter and falling again at a rate of 1.4% in the third quarter.
The old data had GDP falling at annual rates of 0.2% in the first quarter, 0.6% in the second quarter and 1.3% in the third quarter.
That would fit the oft-cited shorthand definition of a recession as a downturn in economic activity represented by at least two consecutive quarters of falling GDP. It also matched the period in which the National Bureau of Economic Research (NBER), which uses a more complicated formula, said the country was in a recession.
The NBER's business cycle dating committee, the recognized arbiter of when recessions begin and end, declared that the country's last downturn began in March 2001 and ended in November that year.
That puts the start of the recession two months after Bush took office. The president and others in his administration have argued that the recession actually began earlier, noting that last year's GDP revision showed that economic output fell at an annual rate of 0.5% in the third quarter 2000, which previously had been listed as positive.
Armed with a negative third quarter in 2000, Republicans have been arguing that they "inherited" a recession. Bush's annual economic report in February contends that the last recession probably began some time in the final three months of 2000...
NRO: A Recession to Remember
Business-investment hemorrhaged in 2000-01 - don’t forget it.
August 04, 2004 Larry Kudlow
It was Santayana who said, “Those who cannot remember the past are condemned to repeat it.” Let’s hope Alan Greenspan is in a remembering frame of mind.
The Commerce Department has revised data for gross domestic product, sparking a minor debate as to whether a recession actually occurred in 2001. Either way, some now argue, if there was a recession, it was one of the mildest on record.
That’s not only utter nonsense, it shows a sad lack of short-term memory.
There was a recession in 2000-01 and it was deep. But you have to look behind the headline real GDP numbers to understand it. When you do that, you find that a very unusual set of events were at work four years ago. Events worth remembering today.
Consumer spending never once declined in the recession of 2000-01. This is because middle-class income actually increased by nearly 5 percent between 2000 and 2002, according to the latest IRS statistics. This fact runs completely counter to the Kerry-Edwards argument about a “middle-class squeeze.”
Still, overall individual income declined 5 percent during this period. Why? Upper-end income suffered mightily. The top tax brackets lost about 28 percent of their income, on average, largely from the stock market crash and the fall in high-paying jobs. Twelve percent of the folks who fought their way above $200,000 a year slipped below that level in 2002.
At the rarified income level of $10 million or more, those with the highest propensity to save and invest lost a stunning 63 percent of their income during 2000-02. Total capital-gains income fell by 29 percent, and dividend income dropped 17 percent. When Bill Clinton recently told the Democrats in Boston that top tax-rate payers don’t need the extra money, he was sorely uninformed.
It was the investment-side of the economy that collapsed in 2000-02. But without investment funding, economic growth was null and void. For example, capital-goods investment (equipment and software) fell in eight of ten quarters between mid-2000 and the end of 2002, with six of those declines coming consecutively. Industrial production declined for six straight quarters. When measured against year-ago levels, after-tax corporate profits declined in seven straight quarters.
Surely, a 78 percent drop in the Nasdaq and a near 40 percent fall in the broader stock indexes deserve the lion’s share of blame for this business-investment recession. In the new economy, the stock market is essential to the investment-funding of business and the income- and wealth-creating activities of the 50 percent of the adult population called the investor class. When the market cost of capital rises sharply, as it did in 2000-02, investment activity hemorrhages...
All sorts of economists are now waiting for GDP to turn positive so that they can declare the end to this most recent recession. The last quarter for which we have any information, Jan-March of this year, came in at a very preliminary estimate of -5.7%. Guesses for the current quarter are around -1.0% to -3.0%. Most econs see GDP turning positive sometime in the third quarter (July/August/September).
So... if GDP is such an oft-revised data set, that has proven time and time again all but useless for recognizing when one is in recession, what, then, should be the #1 indicator that recession has ended?
___________________________________________________________________
What do you think is the best indicator recovery has arrived?
Poll Best Indicator Recovery Has Begun (Recession Over)