NBER 101 Class Back in Session

It will be December 2007. That the NBER will declare a recession in the United States is no longer a matter of debate. As I noted yesterday, Robert Hall, who heads up the NBER's recession dating committee, has now told us as much: "The evidence is more than compelling. It's conclusive, in my personal opinion.'' His colleague Martin Feldstein was on record some time ago saying a recession had begun. The parlor game is now to ascertain when the NBER will peg the recession's debut. (The good news is that, historically, when they formally declare that a recession's begun, it's very close to being over.) They are hinting at wanting more GDP data. We know that the third quarter printed negative, and the fourth quarter will print negative by more than the third, that's for sure. We'll get that number early next year. So, by the time they do their analysis and make their decision, I guess it might well be next spring, which would make sense, as it's possible we'll be on the cusp of exiting the recession at that time.

Back in May, I posted an "NBER 101" piece which looked at the four metrics most analyzed by the NBER in determining whether or not economic growth has peaked. I reproduced a table (immediately below) which shows where their four key metrics have peaked in the past (in months) relative to where they dated a recession. I have appended the recent peaks in these four measures. (NOTE: The peak in Real Income has shifted from Sept. '07 to Oct. '07, probably based on backward revisions, but this is a very minor point.)

Peak	Industrial Production	Employment	Real Sales	Real Income
1960	-3	0	-3	+1
1969	-2	+3	-2	+8
1973	0	+11	0	0
1980	-7	+2	-10	-1
1981	0	0	-6	+1
1990	+2	-1	+1	0
2001	-6	0	-7	No Peak
Current	Jan. '08	Dec. '07	Oct. '07	Oct. '07

Sources, see Page 8:

Industrial Production, Federal Reserve G.17
Employment: BLS.gov, Total Nonfarm Employment, Seasonally Adjusted
Real Sales, BEA.gov, Table 2BU
Real Personal Income, BEA.gov, (Table 2.6 Line 1 - Line 14) divided by Table 2.8.4 Line 1

So, let's have a look at where we are now.

INDUSTRIAL PRODUCTION

NONFARM PAYROLLS

REAL MANUFACTURING AND TRADE SALES

MONTHLY REAL PERSONAL INCOME

So, the four metrics most viewed by the NBER peaked around one year ago. Another measure they like -- Aggregate Weekly Hours -- also peaked about one year ago:

Despite the hard evidence at hand, there were many who simply chose to continue touting what was obviously an increasingly frail economy, like Brian Wesbury, who wrote a piece in the WSJ in January titled "The Economy's Fine (Really)." I won't even get started on -- and hardly have the time for -- the likes of Larry Kudlow, Jerry Bowyer, or Don Luskin.

Now, keep in mind that we do have a -0.2 GDP print for the fourth quarter of 2007 and that the second quarter of 2008 was goosed by the adrenaline shot of a $150 billion stimulus package which, after it wore off, produced a -0.3 GDP print for the third quarter. So, if you're the NBER, and you're looking at all the evidence, where are you going to date it? My guess is December 2007.

As an aside, I saw ML economist Drew Matus on Bloomberg yesterday talking about the fact that most Americans apparently saved more of the first stimulus package than they spent, which obviously was not what the government intended. Drew's solution for the next stimulus package (which, believe me, is coming soon to a mailbox near you), is to offer the stimulus in the form of a "gift" card that cannot be redeemed for cash and comes with an expiration date. In other words, "use it or lose it, and there's no saving it."

And that's your recession update. Now back to your regularly scheduled blogging.

ADDING: Just happened to be perusing the blog of Jeff Frankel, another member of the NBER recession dating committee, who has this to say: "The weight of evidence is now overwhelming: we are currently in recession." That's at least three of the eight on the dating committee. How much longer can a decision possibly take?