Italians and the world have now been told that their economy slipped back into recession in the first half of 2014. This characterization is based on the criterion for recession that is standard in Europe and most countries: two successive quarters of negative growth. But if the criteria for determining recessions in European countries were similar to those used in the United States, this new downturn would be a continuation of the 2012 recession in Italy, not a new one. A common-sense look at the graph below suggests the same conclusion: the 2013 “recovery” is barely visible.
The recent release of a revised set of GDP statistics by Britain’s Office for National Statistics showed that growth had not quite, as previously thought, been negative for two consecutive quarters in the winter of 2011-12. The point, as it was reported, was that a UK recession (a second dip after the Great Recession of 2008-09) was nowerased from the history books — and that the Conservativegovernment would take a bit of satisfaction from this fact. But it should not.
A survey of economists is published in the November 2012 issue of Foreign Policy. One question was whether we thought that the US unemployment rate would dip below 8.0% before the election. When the FP conducted the poll at the end of the summer, unemployment was 8.1-8.2%. Now it’s 7.8%. Only 8% of the respondents said “yes.” (I was one. I basically just extrapolated the trend of the last two years.)
My fellow economists choose defense spending and agricultural subsidies as the two categories of US federal budget that they think the best to cut. They rate the euro crisis as the greatest threat to the world economy now and are particularly worried about Spain.
After the currency crises of 1994-2001, and especially the East Asia crises of 1997-98, a lot of research investigated what countries could do to protect themselves against a future repeat. More importantly, policy makers in emerging markets took some serious measures. Some countries abandoned exchange rate targets and began to float. Many accumulated high levels of foreign exchange reserves. Many moved away from dollar-denominated debt, toward other kinds of capital inflow that would be less vulnerable to currency mismatch, such as domestic currency debt or Foreign Direct Investment. Some instituted Collective Action Clauses in their debt contracts to facilitate otherwise-messy restructuring of debt in the event of a severe negative shock. A few raised reserve requirements or otherwise tightened prudential banking regulations (clearly not enough, in retrospect). And so on.
The NBER‘s Business Cycle Dating Committee, of which I am a member, announced this morning that June 2009 was the trough of the recession that began in December 2007. It was the longest recession since the 1930s.
It is the fate of the Committee to be teased mercilessly every time we make one of our formal declarations of a turning point in the economy. We get it from both directions: We waited too late to call the end of the recession, or we did it too early. (Occasionally someone makes both criticisms simultaneously!) Even The Daily Show got in on the fun this time.
The NBERBusiness Cycle Dating Committee this morning posted an announcement that it had met in person April 8 - an infrequent event - but that it had not yet decided to call the trough in the recession that began in December 2007. The meeting has led to lots of questions from the press over the weekend, for stories that appeared today, and then more questions today in response to those stories. Here are some of the questions that have come up the most often, and my own personal answers, speaking for myself and not the Committee of which I am a member. Continue reading →
The recession is over. The last piece has fallen into place, with the BLSannouncement that employment rose in March.
Identifying the beginnings and ends of recessions has been difficult in recent decades because the two most important indicators, output and employment, have sometimes behaved differently from each other. Most notoriously, in the recovery that began in November 2001, employment lagged far behind economic growth. If one had gone by the labor market, one might have called it a three year recession. But if one had gone by GDP, one might have wondered whether there was a recession at all.
At first glance, the job numbers of the last week seem to offer a mixed and confusing picture. On the one hand, today’s headline from the Bureau of Labor Statistics certainly sounds like good news: the unemployment rate finally dropped below 10.0% — to 9.7%. On the other hand, today’s establishment survey of employment, which most of the time is a more reliable measure than the unemployment rate, still shows job change numbers that are negative. Furthermore, recent numbers on claims for unemployment benefits have been discouraging.
On July 31, the Department of Commerce’s BEA (Bureau of Economic Analysis) released an important set of numbers regarding GDP.Of most immediate interest, the advance estimate of GDP growth for the second quarter, April-June, 2009, was a very moderate -1 per cent per annum.The small magnitude of this negative number confirms an inflection point in the second quarter.As most of us had already thought, the economy is no longer in the free-fall of October 2008 to March 2009 — when the rate of output contraction was approximately 6% per annum – but, rather, is beginning to level out.
Furthermore, the figures reveal large depletion of inventories in the second quarter, which offers good grounds for hope that firms will begin to produce more in the second half of the year.In other words, the economy is probably bottoming out even as we speak.
But even if it turns out that the NBER Business Cycle Dating Committee eventually puts the trough sometime in the 2nd half of 2009, it will not make that decision until all the facts are in, which will be a long time.A major reason is that government statistics, especially for GDP, are always revised subsequently.That brings us to the other big component of the BEA release on Friday:comprehensive revisions to the GDP numbers going back many years.The BEA does a comprehensive revision generally every five years. In this case the statistics were substantially affected, especially those over the last dozen years, as the results of a number of permanent changes in methodology (such as how natural disasters are treated in the accounts).
These revisions produced two interesting implications for the current recession, quite aside from the question whether it is now ending.
First, the recession turns out to have been worse than the previous GDP numbers indicated.During the course of 2008, the economy apparently contracted 1.9%, more than double the previous estimate of 0.8%.The cumulative decline through the 2009 Q-I now appears to have been 2.8% (as compared to the previously reported 1.8%).Add in the latest quarter, and the 3% cumulative decline cements the claim of this recession to be the worst since the 1930s.
Second, that revision includes a conversion of the +0.9% that was previously reported for the first quarter of 2008 to the new estimate for that quarter: -0.7%.
That is important from the viewpoint of the NBER Business Cycle Dating Committee.Why?All through 2008 it was difficult to tell whether a recession had started at the end of 2007. On the one hand, some measures such as employment and real income had peaked then,but on the other hand it appeared that GDP had continued to grow in early 2008.Even after the accelerated deterioration in the autumn of 2008, when it could no longer be doubted that the economy was in recession, the signals as to the date of its beginning still conflicted.
The Committee ended up, on December 1, 2008, declaring that the peak had occurred in December 2007.As always, there were critics.Some didn’t see how we could declare that a recession had begun six months before GDP growth turned negative.“Everybody knows that a recession is defined as two consecutive negative quarters”(More common, as usual, was the precisely opposite critique:“The NBER is just now saying what has long been obvious to everyone but them.”)
The new report from the BEA that the first quarter of 2008 was negative after all is thus another piece of evidence that validates the choice of end-2007 as the business cycle peak.Similarly, it validates the decision by the Committee to have made the call in December, rather than waiting for the BEA revisions of July 31, 2009.
The bottom line of all of this?We are less at sea than we had feared.The data now tell a story that is fairly well delineated, the story of a recession that, though upsettingly severe in amplitude, appears familiarly sinusoidal in shape.
(This post does not necessarily represent the views of the NBER Business Cycle Dating Committee or its members.Nor of the BEA or its Advisory Committee members.)
The Commerce Department this morning announced its advance estimate of last quarter’s real GDP. As expected, the estimate shows that GDP fell in the first quarter of 2009 — by a hefty 6.1 per cent at an annual rate. An implication is that the current recession has just tied the post-war record for longevity.
The previous record-holders were the recessions of 1973-75 and 1981-82, each of them five quarters in length according to the official NBER chronology. In the current downturn, the NBER’s Business Cycle Data Committee determined that the economy peaked in the 4th quarter of 2007. Although the Committee won’t declare the trough of the recession until well after the fact, and the trough could well be a ways off, a negative 1st quarter of 2009 almost certainly means that the five-quarter benchmark has now been attained. (The Commerce Department often revises its GDP figures substantially between the advance estimate and the final number, and we are due for major backward-looking revisions in July. Indeed that is one reason why the NBER always waits so long to issue its findings. In the past, the size of the average revision has been just over 1 percentage point, whether up or down. It is highly unlikely that future revisions will change this morning’s negative number into a positive one.)