Recession Arbiters, Wary of Certifying an Upturn
A committee of economists, charged with determining the official turning points in the nation’s business cycles, certifies the beginnings and ends of recessions. But this time, the committee members say, the evidence is not so easy to decipher.
The committee announced Monday that it cannot yet declare an end to the recession that began in December 2007. Several members of the body had reported this to The New York Times on Sunday. Such an acknowledgment is rare in the history of setting dates to business cycles and could affect the behavior of investors and consumers.
Despite a recent uptick in employment and income, the decision of the committee at a meeting on Friday reflects a lingering worry that the economy could turn downward again in a so-called double-dip recession.
Several economists on the committee, which has seven active members, said they considered such a turn to be unlikely. But, they said, the duration and severity of the contraction have made it hard to determine with authority that a recovery has begun.
The gross domestic product, the broadest measure of economic activity, officially began rising in the second half of 2009, suggesting that a recovery might have quietly started. But the committee takes other factors into consideration, like employment trends and consumer confidence.
Ben S. Bernanke, the Federal Reserve chairman, and Christina D. Romer, the chairwoman of the White House Council of Economic Advisers, are former members of the committee, and its position could potentially affect their outlook on monetary and fiscal policy.
The two previous recessions, in 1990-91 and in 2001, each lasted eight months and were mild enough that the committee felt confident in pronouncing them over in a year or less. As it was, the current recession was 11 months old before the committee announced its start date.
Now, the committee, which is part of the National Bureau of Economic Research, a nonprofit group, says that the timing of an upward turn has been harder to discern than in the past. Moreover, the government has revised several statistics after they were initially released, making it more difficult to say when the economy hit bottom.
“Hypothetically, if there were a new sharp downturn that came along tomorrow, would it count as a new recession or part of the same recession?” asked Jeffrey A. Frankel, a member of the panel, officially known as the Business Cycle Dating Committee. “In the latter case, we would have made a mistake by calling the trough last year and saying the recession was over.”
In interviews, several committee members carefully chose their words. Citing job gains in March, Mr. Frankel, an economist at the Harvard Kennedy School, declared on his blog last week, “The recession is over.” He said he made that case when the committee met Friday in Cambridge, Mass., but added that he could see that a strong argument could be made for holding off on a pronouncement.
Another committee member, Robert E. Hall of Stanford, said, “The odds favor the view that a true expansion has begun and that the recession beginning in 2007 is over.”
But he added that “one cannot totally rule out the unlikely possibility that the economy might resume contraction again soon.”
Under such a situation, he said, the upswing that began in the second half of 2009 would be “only an interruption in a longer contraction, and not an expansion.” But he added, “Currently, forecasters are assigning low probability to such a development.”
A third committee member, James H. Stock, a Harvard economist, has also been associated with the belief that the recession ended last year. On Sunday, Mr. Stock would not describe the discussion.
But he said: “It’s incumbent on the N.B.E.R. to maintain its decades-long tradition of care in the detailed assessment of the date of turning points. That is a far more difficult task than I think many commentators understand.”
A fourth committee member, Martin S. Feldstein, also of Harvard, warned in January of the risk of a double-dip recession. “There is a significant risk the economy could run out of steam sometime in 2010,” he said at a meeting of the American Economic Association. Reached on Sunday, Mr. Feldstein declined to elaborate publicly on his views.
Mr. Frankel and Mr. Hall have been quoted as saying that the recession has ended. In the Internet era, those comments generated more buzz than the bureau is accustomed to. Asked why the committee would not just wait, several members cited the public interest and a desire for transparency.
James M. Poterba of M.I.T., who is the president of the national bureau and a committee member, also would not tip his hand. There is no formula for defining a recession, even though it is often casually described as two consecutive quarters of economic contraction. The committee relies on interpretation to determine the beginning or end of one.
The last time it made such a cautious statement was in December 1990, when it said that a recession had most likely begun between June and September but that it could not make a determination until the contraction was sufficiently long and deep; the committee announced four months later that the recession had started in July 1990.
It seems nearly certain that the present recession will end up lasting longer than the 16-month recessions of 1973-75 and 1981-82. They had been the longest downturns since the 43-month period from 1929 to 1933 that was the first phase of the Great Depression.
The committee, created in 1978, has assigned the start and end dates of economic contractions for every business cycle since 1854. It has long emphasized that it looks only backward, and does not make forecasts or predictions.