April 13, 2010
April 13, 2010
The committee that determines the beginning and ending dates for recessions still is not talking. Actually, they issued a press release saying that there was nothing to say. (Note: the date on the release is probably incorrect–these guys are not real good with dates.)
Let’s understand their issues. The committee does not have a fixed decision rule, but they often look at four coincident indicators:
However, they are not simply tossing ideas around about whether the recession is over. Instead, they ask themselves this key question:
— If we begin getting very negative news on the economy tomorrow, will we say that the economy is in a new recession, or that we are in a continuation of the old recession?
They are NOT speculating on whether that bad news will actually come in. For the purpose of dating the business cycle, they have to answer the hypothetical question. If real income and employment had risen, as industrial production and real business sales have, then they would call new weakness a new recession. But right now they would have a good argument, based on real income and employment, that new weakness is part of the old recession. That tells them not to declare an end to the recession yet.
Another issue they cope with is data revisions. All of these data are subject to revision by the government, especially real income and real business sales. So they have to consider whether they are looking at some numbers that will be revised.
What are the business planning implications of the committee’s delay in making a decision? Don’t take the news as negative, first of all. These are academics who are in no hurry, who would rather get it right than get a decision made promptly.
What use should business leaders make of the recession’s turning points? I strongly recommend using those dates to determine an industry’s vulnerability to recession, as in my case study on economic vulnerability.
For current information, though, don’t give this issue too much of your time.
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