Market Talk

We say this is still a recession

Yesterday’s statement from the NBER Business Cycle Dating Committee seemed a bit odd.

The committee usually releases a statement when it has something substantial to say about the economy. But saying it was maintaining the status quo on its recession call and holding off on declaring the downturn over seemed strange.

But Jeff Frankel, Harvard economist and a committee member, sheds some light on the reasoning behind the statement.

“The press was bound to find out that there had been an in-person meeting (as it did), and so the confusion created by issuing the statement was probably less than the confusion that would have been created by remaining mysteriously silent,” Frankel writes on his blog.

So there you have it. The committee thought ahead about the repercussions of its meeting getting leaked and appeared to act in a transparent manner.

That hasn’t stopped Frankel, himself, as well as Robert Gordon of Northwestern University from stepping forward and claiming the recession is already over.

But what seems to be getting lost in translation is this debate doesn’t really impact investors. Sure, officially calling the recession’s end sounds good from a psychological standpoint, but it’s not likely to impact policy decisions.

“The NBER is attempting to identify peaks and troughs in the economic cycle for research purposes,” Jeffrey Miller, CEO of NewArc Investments, writes at A Dash of Insight. “The NBER has a research mission, not a policy mission.”

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On the same day the NBER Business Dating Committee Cycle announced it’s still too soon to declare the recession over, yet another dissenter from the committee comes forward.

This time, Robert Gordon of Northwestern University and a member of the committee says he “strongly disagrees” with the committee’s decision.

“It is obvious that the recession is over,” he says, noting he believes it ended in the second quarter of 2009.

“The American economy is enjoying strong upward momentum that is evident every day in the announcements of retail sales, service sector production, and almost everything else,” he adds. “There are no negatives in the actual data, but rather the negatives reside in doomsayer worries that consumers are too weak to spend or that the economy will collapse after the Obama stimulus dollars have been spent.”

He also finds the prospects for the economy double-dipping back into recession “extremely implausible.”

Gordon’s dissent comes one week after Harvard economist and fellow committee member Jeffrey Frankel said the recession was over. Frankel based his opinion off the labor market, which was showing signs of life last July before finally experiencing job growth last month.

It seems reasonable, of course, to assume other committee members aren’t so convinced.

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Harvard economist Jeff Frankel posts an interesting graphic detailing the economy’s roller coaster ride since peaking in Dec 2007.

Index of Leading Economic Indicators leads the train, as it rose for a seventh consecutive month in October, followed by consumer confidence, which has hit some bumps throughout the ride, but still remains substantially higher than it was in February, Frankel says.

“The important middle cars, which represent measures of aggregate output, probably reached bottom in the early summer, and then started back up,” he adds.

To be sure, the unemployment measures lag the rest of the train, as they typically do.

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