The National Bureau of Economic Research (NBER) revealed the worst kept secret in the world on Monday when its Business Cycle Dating Committee report “determined that a peak in economic activity occurred in the U.S. economy in December 2007.”
The peak marks the end of expansion and the beginning of a recession. The NBER does not accept the common definition of recession: two consecutive quarters of negative GDP growth.
NBER defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators.”
The report goes on to say, “All evidence other than the ambiguous movements of the quarterly product-side measure of domestic production confirmed that conclusion.”
The word “all” is pretty revealing. So every possible measure of economic activity indicated we have been in a recession since December 2007 except the one official measure. That is an interesting point of view though not a unique one. John Williams of Shadow Government Statistics has been making that point for quite a while.
There were a few other clues as well. The Federal Reserve usually does not cut its Fed Funds rate 350 basis point in less than a year (which they have done since Dec. 11, 2007) when the economy is doing alright, let alone open up their lending facilities to investment banks and brokerages for the first times since the 1930s, which the Fed has also done. Rarely does our government bailout numerous large institutions—Bear Stearns, Fannie Mae, Freddie Mac, AIG—when the economy is in the pink.
There are the myriad of other indicators as well such as rising unemployment, declining retail sales, plummeting housing values and consumer confidence. Yet so many market analysts and government officials dismissed the notion that we were in a recession. Many in fact, peddled the notion that any economic weakness was caused by the constant negative drumbeat of all the “Chicken Littles” out there. If it weren’t for that, everything would be fine. This was after all an election year. Too many of our leaders have been attempting to manage expectations, I am not sure if some of them know the difference between reality and spin anymore. But the endless campaign has come with a cost.
If you cannot define the problem, you cannot address it.
Tags: Fed funds, National Bureau of Economic Research (NBER), recession
