Is there a recession? Only the National Bureau of Economic Research decides
Data from the Commerce Department this week revealed that the US economy had contracted for a second straight quarter, sparking fresh debate over whether the country was in a recession.
Negative growth for two consecutive quarters meets a common definition of a recession – and it is the official way to make such a call in some countries.
But it’s not in the US, where a relatively low-key group – the National Bureau of Economic Research’s (NBER) Business Cycle Dating Committee – is tasked with issuing an official call to find out if the country is in a recession. .
What is this group, and how does it make its proclamations?
The group within the NBER that makes the call on the recession is the Business Cycle Dating Committee.
It has eight members, who are among the nation’s top economists, all of whom work at the country’s top academic institutions: Robert Hall of Stanford, Robert Gordon of Northwestern, James Poterba of the Massachusetts Institute of Technology, Valerie Ramey of the University of California in San Diego, Christina Romer of UC-Berkeley, David Romer of UC-Berkeley, James Stock of Harvard and Mark Watson of Princeton.
Christina Romer served as chair of the Council of Economic Advisers under President Obama, and Poterba is the chair of the NBER.
The NBER’s formal definition of a recession is broad. According to its Frequently Asked Questions page, the NBER’s traditional definition is “a significant decline in economic activity that spreads throughout the economy and lasts for more than a few months.”
It takes into account the magnitude, spread and duration of the decline in economic activity. While the committee is of the view that each “should be individually satisfied to some extent, the extreme conditions revealed by one criterion may partially offset the weaker indications of another”.
Economists say the NBER looks at many different indicators to determine if the economy is in a recession.
“It actually looks at a wide variety of economic indicators to make that designation,” said Alex Durante, an economist at the Tax Foundation think tank. “They look at employment, personal income, durable goods, housing permits – so GDP is definitely one of them, but they look at other indicators as well.”
Employment is a crucial factor in examining today’s economy. The U.S. labor market is hot, even as the Commerce Department found the economy has contracted in the past two quarters.
The White House, which has pushed back against the idea that there is a recession, pointed out that unemployment is at a historic low of 3.6%.
The panel found that a recession occurred in April 2020, after much of the US economy shut down at the start of the coronavirus pandemic. It concluded in July 2021 that the recession had lasted two months – the shortest on record in the country’s history.
Durante said a statement on the current recession – if it really exists – is unlikely to come until 2023.
“It’s obviously difficult for policy makers who want to stay on top of these conversations, but typically the NBER only makes the designation after a year,” he said. “It’s because they want to make sure they have enough data, but also because data tends to be revised.”
Indeed, Commerce Department data that showed the economy contracted 0.9% in the second quarter may be revised. This is a small enough decrease to accommodate the typical margin of error by which the department may correct its preliminary forecast.
The origins of the NBER are in the petroleum industry.
According to a brief history of the NBER written in 1984 by former vice president of research Solomon Fabricator, the organization traces its history in part to initiatives taken in the early 20th century by the new Rockefeller Foundation, the philanthropic body built in from the huge oil fortune of John D. Rockefeller.
In 1914, the dean of Harvard Business School, Edwin Gay, “had played a leading role, at the request of the executive secretary of the newly created Rockefeller Foundation, in the preparation of a memorandum describing the organization and functions of an economic research institute analogous to the already established Rockefeller Institute for Medical Research. The proposed institute would engage in scientific and unbiased inquiry “of such scope as to exceed the power of our existing university research facilities “, wrote Maker.
Half a century later, the Commerce Department began citing the NBER’s work on the business cycle, giving it a kind of government legitimacy, according to the Washington Post.
But the NBER’s research has not been immune to controversy.
A recent investigation by The Guardian revealed that Alan Krueger, former chairman of the White House Council of Economic Advisers, was paid $100,000 by Uber while writing an article published under the NBER about Uber that said he had been a creator of good jobs. Published in 2016 as part of a series of NBER working papers, the revelation of the payment drew academic criticism.
An NBER spokesperson said Krueger’s work as a consultant for Uber was clearly disclosed.
“The cover page of the NBER working paper revealed the fact that Alan Krueger was working as a consultant for Uber when the paper was written, and that his co-author was an employee and shareholder of Uber. The same acknowledgments have been included in the version of the article that has been published, after peer review, by the Industrial and Labor Relations Review,” read the statement emailed to The Hill.
The NBER is a research institution that receives money from the government but also earns money through investments, according to its website.
“NBER research is supported by grants from government agencies or private foundations, by contributions from corporations and individuals, and by income from the NBER investment portfolio,” the website states.
He says the groups that contribute the most to his research projects are the National Institute of Health, the National Science Foundation, the Social Security Administration and the Alfred P. Sloan Foundation.
“NBER conducts research but does not make policy recommendations or conduct advocacy based on research findings,” the group says of itself.