Dating business cycles using many indicators The NBER's Business Cycle Dating Procedure: Frequently Asked Questions
Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER's recession dating procedure?
A: Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. In 2001, for example, the recession did not include two consecutive quarters of decline in real GDP. In the recession beginning in December 2007 and ending in June 2009, real GDP declined in the first, third, and fourth quarters of 2008 and in the first quarter of 2009. The committee places real Gross Domestic Income on an equal footing with real GDP; real GDI declined for six consecutive quarters in the recent recession.
Q: Why doesn't the committee accept the two-quarter definition?
A: The committee's procedure for identifying turning points differs from the two-quarter rule in a number of ways. First, we do not identify economic activity solely with real GDP and real GDI, but use a range of other indicators as well. Second, we place considerable emphasis on monthly indicators in arriving at a monthly chronology. Third, we consider the depth of the decline in economic activity. Recall that our definition includes the phrase, "a significant decline in activity." Fourth, in examining the behavior of domestic production, we consider not only the conventional product-side GDP estimates, but also the conceptually equivalent income-side GDI estimates. The differences between these two sets of estimates were particularly evident in the recessions of 2001 and 2007-2009.
Q: How does the committee weight employment in determining the dates of peaks and troughs?A. In the 2007-2009 recession, the central indicators–real GDP and real GDI–gave mixed signals about the peak date and a clear signal about the trough date. The peak date at the end of 2007 coincided with the peak in employment. We designated June 2009 as the trough, six months before the trough in employment, which is consistent with earlier trough dates in the NBER business-cycle chronology. In the 2001 recession, we found a clear signal in employment and a mixed one in the various measures of output. Consequently, we picked the peak month based on the clear signal in employment, as well as our consideration of output and other measures. In that cycle, as well, the dating of the trough relied primarily on output measures.
Q: Isn't a recession a period of diminished economic activity?
A: It's more accurate to say that a recession–the way we use the word–is a period of diminishing activity rather than diminished activity. We identify a month when the economy reached a peak of activity and a later month when the economy reached a trough. The time in between is a recession, a period when economic activity is contracting. The following period is an expansion. As of September 2010, when we decided that a trough had occurred in June 2009, the economy was still weak, with lingering high unemployment, but had expanded considerably from its trough 15 months earlier.
Q: How do the movements of unemployment claims inform the Bureau's thinking?
A: A bulge in jobless claims usually forecasts declining employment and rising unemployment, but we do not use the initial claims numbers in determining our chronology, partly because of noise in that data series.
Q: How do the cyclical fluctuations in the unemployment rate relate to the NBER business-cycle chronology?
A: The unemployment rate is a trendless indicator that moves in the opposite direction from most other cyclical indicators. Its level in February 1949 was the same 4.7 percent as in November 2007. The NBER business-cycle chronology considers economic activity, which grows along an upward trend. As a result, the unemployment rate often rises before the peak of economic activity, when activity is still rising but below its normal trend rate of increase. Thus, the unemployment rate is often a leading indicator of the business-cycle peak. For example, the unemployment rate reached its lowest level prior to the December 2007 peak of activity in May 2007 at 4.4 percent and climbed to 5.0 percent by December 2007. On the other hand, the unemployment rate often continues to rise after activity has reached its trough. In this respect, the unemployment rate is a lagging indicator. For example, in the recovery beginning in March 1991, the unemployment rate continued to rise for 15 months after the trough. The lag was 19 months in 2001 to 2003. In the current recovery, the lag was only 4 months, from the trough in activity in June 2009 to the highest level of the unemployment rate in October 2009.
Q: What data from the National Income and Product Accounts are used in the calculation of real personal income less transfers?
A: Personal income comes from Table 2.6 of the National Income and Product Accounts, less personal current transfer receipts from the same table, deflated by a monthly interpolation of the price index for gross domestic product, NIPA Table 1.1.9.
Q: Are there estimates of monthly real GDP?
A: Yes. Macroeconomic Advisers, a consulting firm, prepares estimates of monthly real GDP. The committee also considered new estimates of monthly real GDP and GDI constructed by two committee members, James Stock and Mark Watson Buscar novia venezuela. Many of the ingredients of the quarterly GDP figures are published at a monthly frequency by government agencies. The monthly GDP numbers are noisy and are subject to considerable revision.
Q: Has the committee ever changed a cycle date?
A: In the past, the NBER has made some small changes to cycle dates, most recently in 1975. No changes have occurred since 1978 when the Business Cycle Dating Committee was formed. The committee would change the date of a recent peak or trough if it concluded that the date it had chosen was incorrect.
Q: Typically, how long after the beginning of a recession does the BCDC declare that a recession has started? After the end of the recession?
A: The committee's determination of the peak date in December 2007 occurred 11 months after that date and the committee's action in determining the trough date of June 2009 occurred 15 months after that date. Earlier determinations took between 6 and 21 months. There is no fixed timing rule. The committee waits long enough so that the existence of a peak or trough is not in doubt, and until it can assign an accurate peak or trough date.
Q: Does the NBER keep a record of when it announced the determination of the dates of peaks and troughs prior to those given in the Bureau's website?
A: The Business Cycle Dating Committee was created in 1978, and since then there has been a formal process of announcing the NBER determination of a peak or trough in economic activity. Those announcement dates were: June 3, 1980; July 8, 1981; January 6, 1982; July 8, 1983; April 25, 1991; December 22, 1992; November 26, 2001; July 17, 2003; December 1, 2008; and September 20, 2010. During the period 1961-1978, the U.S. Department of Commerce embraced the NBER turning points as the official record of U.S. business cycle activity, but the NBER made no formal announcements when it determined the dates of turning points. There was an informal notification process between the NBER researchers and the Commerce Department, followed by publication of turning point dates in Commerce Department publications.
Q: When the BCDC says that the recession ended in June, is there a specific date in June?
A: The committee identifies the month when the trough occurred, without taking a stand on the date in the month. Thus, December 2007 is both the month when the recession began and the month when the expansion ended. Similarly, June 2009 is both the month when the recession ended and the month when the expansion began.
Q. How does the BCDC's quarterly chronology relate to its monthly chronology?
A. The Committee makes a separate determination of the calendar quarter of a peak or trough. Generally, the peak or trough quarter contains the peak or trough month. The most recent exception was in 1953, when the month chosen was July but the quarter chosen was the second rather than the third quarter of the year. As with the monthly turning point dates, the Committee does not take a stand on the exact date within the quarter when the turning point occurred.
Q: Does the NBER identify depressions as well as recessions in its chronology?
A: The NBER does not separately identify depressions. The NBER business cycle chronology identifies the dates of peaks and troughs in economic activity. We refer to the period between a peak and a trough as a contraction or a recession, and the period between the trough and the peak as an expansion. The term depression is often used to refer to a particularly severe period of economic weakness. Some economists use it to refer only to the portion of these periods when economic activity is declining. The more common use, however, also encompasses the time until economic activity has returned to close to normal levels. The most recent episode in the United States that is generally regarded as a depression occurred in the 1930s. The NBER determined that a peak in economic activity occurred in August 1929, and that a trough occurred in March 1933. The NBER identified a second peak in May 1937 and a trough in June 1938. Both the contraction starting in 1929 and that starting in 1937 were very severe; the one starting in 1929 is widely acknowledged to have been the worst in U.S. history. According to the Bureau of Economic Analysis, real GDP declined 27 percent between 1929 and 1933, roughly five times as much as in the worst postwar recession. If the term Great Depression is used to mean the period of exceptional decline in economic activity, it refers to the period from August 1929 to March 1933. If it is used to also include the period until economic activity had returned to approximately normal levels, most economists would judge that it ended sometime in 1940 or 1941. However, just as the NBER does not define the term depression or identify depressions, there is no formal NBER definition or dating of the Great Depression.
Q: Does the concept of a double-dip recession exist in the NBER's business cycle chronology?
A: The NBER does not define a special category called a double-dip recession. Two periods of contraction will be either two separate recessions or parts of the same recession. The main criteria that the committee applies to determine whether a downturn following one business cycle peak and apparent trough is a separate recession or the continuation of the earlier one are the duration and strength of the upturn after the initial trough. For example, the committee's determination that the recession that began in 1981 was separate from the one that began in 1980 was based in part on the extent to which major economic indicators bounced back in late 1980 and early 1981. Since its inception in 1978, the committee has not encountered any other episode that involved two consecutive contractions. The committee does not apply fixed formulas in this and other determinations, but rather forms judgments based on the underlying concepts of recessions and expansions and the goal of preserving historical continuity in the NBER business cycle chronology.
Q: Has the NBER previously determined a trough date prior to the time when economic activity surpassed its previous peak?A. Yes, the NBER has done this before. For example, on July 8, 1983, the committee announced that a trough had occurred in November 1982 before real GNP had exceeded its 1981 third quarter peak.
Q: When did the NBER first establish its business cycle dates?
A: The NBER was founded in 1920, and published its first business cycle dates in 1929.
Q: When was your committee formed?
A: The committee was created by the President of the NBER in 1978. Robert Hall has chaired the committee since its inception.
Q: How is the committee's membership determined?
A: The President of the NBER appoints the members, who include directors of the macro-related programs of the NBER plus other members with specialties in business-cycle research.
Q: Why did the committee not declare the end of the recession when it met on April 8, 2010, even though, as it noted in its announcement, most indicators had turned up by that date?
A: The committee does not make real-time judgments, but waits for the availability of all relevant data and for the completion of early data revisions. The committee then looks back on history and determines in what month the economy reached bottom and began to expand again. The committee also has to guard against the possibility, even if very small, that what seems to be the beginning of an expansion is actually just an interruption in a longer contraction.
Robert Hall, Chair -- Past Director of NBER's Program on Economic Fluctuations and Growth and Professor, Stanford University
Martin Feldstein -- President Emeritus of NBER and Professor, Harvard Univerity
Jeffrey Frankel -- Director of NBER's Program on International Finance and Macroeconomics and Professor, Harvard University
Robert J. Gordon -- NBER Research Associate and Professor, Northwestern University
James Poterba -- President of NBER and Professor, M.I.T.
Christina Romer -- Co-Director of NBER's Program on Monetary Economics and Professor, University of California, Berkeley
David Romer -- Co-Director of NBER's Program on Monetary Economics and Professor, University of California, Berkeley
James Stock -- NBER Research Associate and Professor, Harvard University
Mark W. Watson -- NBER Research Associate and Professor, Princeton University