Questions on the ability of the NBER to Announce Recessions
Question One: The NBER is the official arbiter of when a recession ends or begins. The peak date is the date the recession begins (or the date the boom cycle ends) and the trough is the last date of the recession (or the date the boom begins).
What is the typical gap in months between the announcement of the event (trough or peak) and the actual date of the event?
Has the NBER ever announced a recession after the recession actually ended?
|Gap Between NBER Business Cycle Event and Announcement|
|Turning Point Date||Peak or Trough||Announcement Date with Link||Gap Between Event and Announcement Date|
Analysis: The Peak and trough date data and the announcement link data was taken from the NBER web page.
A discussion of how to use the turning point data and announcement date in excel to calculate the gap between actual event and announcement will be placed at dailymathblog.blogspot.com shortly.
The gap between announcement date and event date ranges from 5 months to 20 months.
The average gap between announcement and event is 11.6 months
The median gap between announcement and event is 10.5 months.
The average gap between business cycle peak (the last month of the boom) and the announcement of the peak is 8 months.
The average gap between business cycle trough (the last month of the recession) and the announcement of the end of the recession is 15.2 months.
The median gap between business cycle peak (the end of the boom) and the announcement that the boom ends is 8 months.
The median gap between business cycle trough (the last day of the recession) and the announcement that the recession ends is 15 months.
The issue of declaring a recession after it actually ends:
The NBER is not adding value when it declares the country is in a recession after the recession has actually ended. This occurred whenever the announcement of the business cycle peak occurred after the actual trough. When did this occur?
On November 26, 2001, the NBER issued a peak announcement. The actual trough of the 2001 recession occurred in November 2001. The trough was not announced until 2003.
On April 25, 1991 the NBER announces an end to the boom period. The actual recession ended a Month early but the NBER did not make the end of recession call until December 1992.
Concluding Thought: In order to prevent a recession by stimulating the economy economists need to know where the economy is and where it is heading. The data presented here indicates that economists often don’t know whether the economy is weak or strong and don’t know whether the economy is in or out of a recession until several months after the event. In fact, some times economists don’t declare the existence of a recession until after the even actually ended.
The inability of economists to accurately track the economy in a timely fashion is one of the impediments to the successful implementation of counter-cyclical fiscal and monetary policy.
Some notes on these calculations can be found in my math blog.
The link to this math post is below.