Sorry, Agendized Academics: The Recession Began in June 2008
During that year's third quarter, the economy lost almost 1.3 million Household Survey jobs and 794,000 Establishment Survey jobs -- more than was lost in either survey during the first half of 2008. Yet NBER declared the recession over primarily because of mild annualized GDP growth of 1.4 percent (after all revisions to date); Macro Advisers' analysis shows only a 0.5 percent improvement from June to September 2009.
As I predicted in October 2009, "[I]f the NBER does decide that the third quarter wasn’t recessionary, it will be the first time it has done so during a period of so much quarterly job loss, even after adjusting for workforce size." And that's what it did.
But it gets better -- actually worse, if you're naive enough to believe that NBER is some hallowed organization which looks at these matters with perfect objectivity.
In justifying pegging the recession's end at June 2009, NBER wrote (bolds are mine throughout the rest of this column):
... the committee refers to a variety of monthly indicators to choose the months of peaks and troughs. It places particular emphasis on measures that refer to the total economy rather than to particular sectors. These include a measure of monthly GDP that has been developed by the private forecasting firm Macroeconomic Advisers ...
Contrast this statement with how the group said it handled determining the recession's beginning:
In its deliberations, the committee relied on a number of monthly and quarterly economic indicators published by government agencies.
There is no mention of private firms whatsoever.
Grasp the significance of this. NBER appears to have totally disregarded Macro Advisers' monthly GDP measurements when it pegged the start of the recession, but placed "particular emphasis" on monthly indicators like those from Macro Advisers in determining its end.
And it gets even worse.
In deciding that the previous recession ended in November 2001, NBER wrote that "the committee also looks at estimates of monthly real GDP prepared by Macroeconomic Advisers." Additionally, in assigning that recession's March 2001 beginning, it wrote:
The traditional role of the committee is to maintain a monthly chronology, so the committee refers almost exclusively to monthly indicators. The committee gives relatively little weight to real GDP because it is only measured quarterly and it is subject to continuing, large revisions.
Although Macro Advisers isn't specifically named, the firm has been doing monthly GDP estimates since 1992.
Summed up succinctly: NBER appears to have ignored monthly GDP -- something it has stated several times is a desirable data point to review -- only one time in its past four business cycle evaluations of the economy. That was in determining when the most recent recession began. Primarily because it chose to rely only on quarterly data it had previously characterized as deserving "little weight," it blew the call.
If NBER had properly applied its own criteria, it would have concluded that the economy reached its previous-decade peak in June of 2008.
I questioned NBER's call when it was first announced. I've stood by that assesment several times since (here, here, here, and here), even though the data has gravitated in NBER's direction a bit -- but not nearly enough -- during the intervening years. I'm more convinced than ever that NBER was and remains wrong, and that yours truly has been and remains right.
The beginning of the recession thus directly ties to the perfectly predictable "batten down the hatches" reactions of enough businesspeople, investors and entrepreneurs to matter to the energy-starving, heavy-taxing, wealth-redistributing, business-hostile agenda in Obama's mid-2008 speeches and his party's platform.
As I see it, NBER, regardless of its alleged stated "nonpartisan" nature and regardless of the fact that a few of its leaders might be considered center-right economists, has little if any defense against a charge that in determining that the recession began in December 2007, it acted no differently than a bunch of left wing-coopted tools.
In doing so, it has provided priceless assistance to Barack Obama, and has enabled all but those who understand and closely follow business and the economy with an open mind to avoid seeing what should have been obvious. I documented that point when I declared the POR economy's beginning in early July 2008, and rephrased it nine months later:
... businesspeople, entrepreneurs, and investors ... deliberately downsized in response to stated promises by powerful government officials Pelosi, Obama, and Reid to penalize and punish them and the economy as a whole, if and when they gained power.
After two years of having the terrible triumvirate of House Speaker Nancy Pelosi, Obama, and Senate Majority Leader Harry Reid in power followed by another 2-1/2 during which Obama and Reid have done everything possible to prevent a return to economic and fiscal sanity, economic conditions remain decidedly worse in too many areas to mention. Five years after the recession really began, we still have the POR economy, and the shackles it has placed on the economy's producers have become more crippling than ever.
NBER's blown call demonstrates why we shouldn't leave the determination of when a recession begins or ends in the hands of mistake-prone and all too often agenda-driven academics. The layman's definition -- "a decline in GDP for two or more consecutive quarters" -- is easy to understand and, more importantly, not subject to manipulation.
(Thumbnail on PJM homepage based on a modified Shutterstock.com image.)