Business Cycle Dating Committee Says Recession Over
September 21, 2010
William L. Pittenger, MAI T he Business Cycle Dating Committee (BCDC) of the National Bureau of Economic Research
(NBER), the official arbiter of the nation's business cycle, today (September 20,
2010) declared that the recession reached a trough and therefore ended in June 2009. The
BCDC is a group of academic economists based in Cambridge, MA which has responsibility
for dating peaks and troughs in the nation's business cycle.
The Great Recession, as it has come to be known, therefore officially lasted 18 months and was
the longest since The Great Depression of the 1930's. The peak of the last business cycle and therefore
the start of the recession was in December 2007 although the BCDC made that declaration a full
12 months later in December 2008. The end is being announced some 17 months after the presumed
end. Such lengthy delays are not unusual as the committee is charged with dating peaks and troughs
-- not forecasting them.
The committee makes its decisions based on a wide variety of macro-economic indicators over a
fairly lengthy period of time and over a broad geography. They rely heavily on the two broadest indicators
of economic performance, the Gross Domestic Product (GDP) and Gross Domestic Income
(GDI). Both are subject to annual revision and were in fact revised in July and August by the Bureau
of Economic Analysis. The BCDC waited until those revisions were made to decide the recession had
technically ended. The average of GDP and GDI was 3.1% above its low in the second quarter of
2009 but remained 1.3% below the previous peak in December 2007 which, in large part, contributed
to the reasoning behind the June 2009 trough date. Click here for a link to the official statement and
FAQs concerning the BCDC dating methodology.
There are no fixed rules about what weights the committee applies to any particular indicator or
what other measures are used in the process. The widely touted rule of thumb that two quarters of
GDP decline equals a recession or two quarters of rising GDP equals recovery is just that - a simplistic
rule of thumb which is not a measure the BCDC relies on.
Many observers have been debating the possibility of a "double dip recession. Indeed, much of
the debate centered around whether The Great Recession had ended and a "double dip" was likely or
whether the renewed weakness in the economy that began in about June 2010 was just more of the
same. The Business Cycle Dating Committee has now taken the position that The Great Recession
has ended and if a double dip occurs, it will be a new recession and dated separately. The committee
made no assertion that the economy is strong, robust or performing anywhere near its potential. Indeed,
it is very clear that The Great Recession was extraordinarily broad, deep and created profound
structural change in many sectors - especially employment and housing.
Even with the recession being declared officially ended, nearly 15 million Americans remain unemployed.
The nation's unemployment rate is hovering just under 10%, long term unemployment is
at a record high, homes have lost nearly 40% of their value and commercial real estate has too.
Nearly 340,000 households (one in 381) received some sort of foreclosure notice in August. Finally,
banks are failing in near record numbers and many more will certainly follow. The story is worse in
Florida, Nevada, Arizona and California where both the rise and fall of housing was the greatest.
What are the odds of a double dip? No one knows for sure but the doom and gloomers put the
odds at nearly 100%. A few prominent economists and lawmakers have even uttered the word
"depression." Those extreme views seem hard to rationalize. As we wrote a few weeks ago in a commentary
called "In Memory of the Green Shoots," those views are way over blown. In our view, the
odds of another recession - a double dip - are more likely 25% to 35%. The economy is undeniably
in bad shape and has worsened in recent months. Still, it is not as bad as it was at the mid 2009
trough. Nevertheless, it will be a long, slow and oftentimes painful crawl back to robust growth.
The never ending job search
This and other commentaries are
available at www.billpittenger.com