Calling the Recession Over

The NYT has a good article on the issue of NBER officially declaring the recession over. I hear lots of people talking about the possibility of a double-dip. Even if that happens, I would have to view that as a separate cycle.

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.

I recently looked at the data and found that the ISM is the among the best predictors of what the committee will do. Once the ISM Composite Index crosses 44, the odds that we’re still in a recession drop dramatically. We’ve now been above that every month since June 2009.

Note that the last shaded area isn’t official. NBER has said the recession began in December 2007, but we haven’t heard on its ending just yet.

Posted by Eddy Elfenbein on April 12th, 2010 at 11:00 am

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