NBER, again

The National Bureau of Economic Research (NBER) is the an independent committee of economists that determines the official starting and ending dates of recessions in the United States. The NBER declared that the recession started in 2008 was officially ended in June 2009 last week. Most responses from media around the nation were head scratching and disbelieved. "What closest are they living in?" was the typical. Even President Obama said there is little to celebrate as many are still struggling.

The NBER did the same in the 2000 bubble burst: in late 2001, it declared that the bubble was over, roughly 8 months duration. However, the employment rate actually took two and a half years to recover.

How come the NBER draw such somehow ridiculous conclusions? The committee looks at a variety of indicators --- employment, industrial production, consumer spending, GDP. If all these indicators are going down, a recession is declared. If several of them turn up again, the recession is over. In 2000's recession example, by late 2001, industrial production and GDP were rising, though slowly, so that indicated the end of the official recession, even though the job market was still getting worse. The same occurred in June 2009. So the recession was over then. As simple as that. No need to have a committee, right?

Since it is independent, it can say whatever it wants, no matter how disbelieved you are. The question is that, can the NBER declare another recession? if yes, when? Probably not in the coming two years. GDP will be in the north of zero and unemployment can only go down. It is unlikely there is much the committee can do. To this sense, there is much to celebrate, thanks to the rigid rules it set.