jreeves
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- Feb 12, 2008
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Econbrowser: The 2001 recession revisited
With revised data, when did the last recession begin?
In a recent post, Greg Mankiw cites Hamilton and Chauvet in support of his view that a good argument could be made that the recession of 2001 actually began in 2000. Mankiw writes:
"Back in 2004, Michael Mandel of Businessweek gave me grief for saying that the 2001 recession began in late 2000, rather than at the official NBER date of March 2001. My view (and the view of the nonpartisan CEA staff) was that the data were substantially revised after the NBER committee made their call, and the March 2001 date no longer seemed right in light of the revised data."
As some readers may recall, the 2004 Economic Report of the President contained this box, which states:
"The National Bureau of Economic Research (NBER) uses a variety of economic data to determine the dates of business-cycle peaks and troughs. This task is made more difficult because many of these data series are subject to revision. For example, on November 26, 2001, the NBER announced that a recession had begun in March 2001. Since then, the four data series that the NBER used to determine the timing of the recession have been revised. The revisions to these series suggest that the recent recession began earlier than March 2001.
The four series cited by the NBER in their decision about the recent business-cycle peak were revised as follows:
* Real personal income less transfers:When the NBER dated the recession, this series showed a generally steady rise throughout 2000 and early 2001. Subsequent revisions reveal that income peaked in October 2000.
* Nonfarm payroll employment: The data at the time of the recession announcement showed employment growing at a substantial pace in early 2001, with 287,000 jobs added from December 2000 to its peak in March 2001. Revised data show that employment grew less than one-third of this amount in early 2001 and peaked in February 2001.
* Industrial production:The original data used by the NBER showed that this series peaked in September 2000. Revised data show that this peak came even earlier, in June 2000.
* Manufacturing and trade sales: Original data showed a peak in August 2000; the most recent data show a peak in June 2000.
Thus, the revised data show that the latest peak among the four series was February 2001, with some series peaking considerably earlier. Moreover, another data series, which the NBER has recently announced it will incorporate into its business-cycle dating process, also shows a peak before March 2001: monthly GDP reached a high point in February 2001, according to the most recently available estimates computed by a private economic consulting firm.
While some arbitrariness in determining the date on which a recession began is inevitable, revisions since the NBER made its decision for the most recent recession strongly suggest that the business-cycle peak was before March 2001. The median date of the peak for the five series discussed here is October 2000. Other data support the notion that economic activity had slowed sharply or even begun to decline by this point, including the stock market, business investment, and initial unemployment claims. For these reasons, the analyses throughout this chapter (including the charts that compare this recession to past recessions) use the fourth quarter of 2000 as the peak of economic activity and the start of the recession.
US Recession 2000 Can tell us a lot about today's Economy :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website
he NAPM Index showed that manufacturing was contracting. Moreover, manufacturers accelerated the liquidation of inventories in April 2000, bringing the Inventories Index down from 44.2 per cent in March to 39.6 per cent in May 2001. In late 2001 another NAPM report showed that economic activity in the manufacturing sector had fallen for the 15th consecutive month in October. Leaving no room for Keynesian Pollyanna's to find a chink of light, it also revealed that the overall economy had ground to a halt. But what is of the strictest importance about both NAPM manufacturing findings is that they narrowed the beginning of the recession down to about the middle of 2000 . Well guess who was the then president?
Now the index registered employment as negative from January 2001. The meaning of this was brought home when it was reported that 223,000 jobs were lost in May 2001, the biggest drop in ten years, raising the US April unemployment rate to 4.5 per cent. This was on top of a loss of 53,000 jobs in April. (Note the rate at which the jobless increased. As an aside, also note how the ever-so honourable leftist media blamed Bush for the job losses). Meanwhile, average hourly earnings rose 0.4 percent in April after a 0.4 percent increase in the previous month. There was nothing unusual here. The classical economists also observed that there was a tendency for wages to continue rising in the final phase of a boom.
Eventually the recession struck at the rest of the economy, including services, but to a lesser degree. In early May the NAPM revealed that its non-manufacturing index had dropped three points in April to 47.1. This was the lowest monthly reading in the survey's four-year history, making it a 14 point fall since December 2000. What is particularly interesting is that the NAPM survey's indicated a general contraction. Yet consumer spending actually accelerated during the recession. How could this be and why didn't the GDP go negative throughout the recession. According to Tim Kane and Rea Hederman of the Cato Institute
The NBERs Recession Dating Procedure
The National Bureau's Business Cycle Dating Committee maintains a chronology of the U.S. business cycle. The chronology identifies the dates of peaks and troughs that frame economic recession or expansion. The period from a peak to a trough is a recession and the period from a trough to a peak is an expansion. According to the chronology, the most recent peak occurred in March 2001, ending a record-long expansion that began in 1991. The most recent trough occurred in November 2001, inaugurating an expansion.
A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.
On November 26, 2001, the committee determined that the peak of economic activity had occurred in March of that year. For a discussion of the committee's reasoning and the underlying evidence, see The Business-Cycle Peak of March 2001. The March 2001 peak marked the end of the expansion that began in March 1991, an expansion that lasted exactly 10 years and was the longest in the NBER's chronology. On July 16, 2003, the committee determined that a trough in economic activity occurred in November 2001. The committee's announcement of the trough is at Index of /cycles/july2003. The trough marks the end of the recession that began in March 2001. The 2001 recession thus lasted eight months, which is somewhat less than the average duration of recessions since World War II. The postwar average, excluding the 2001 recession, is eleven months.
In choosing the dates of business-cycle turning points, the committee follows standard procedures to assure continuity in the chronology. Because a recession influences the economy broadly and is not confined to one sector, the committee emphasizes economy-wide measures of economic activity. The committee views real GDP as the single best measure of aggregate economic activity. In determining whether a recession has occurred and in identifying the approximate dates of the peak and the trough, the committee therefore places considerable weight on the estimates of real GDP issued by the Bureau of Economic Analysis of the U.S. Department of Commerce. The traditional role of the committee is to maintain a monthly chronology, however, and the BEA's real GDP estimates are only available quarterly. For this reason, the committee refers to a variety of monthly indicators to determine the months of peaks and troughs.
The committee places particular emphasis on two monthly measures of activity across the entire economy: (1) personal income less transfer payments, in real terms and (2) employment. In addition, the committee refers to two indicators with coverage primarily of manufacturing and goods: (3) industrial production and (4) the volume of sales of the manufacturing and wholesale-retail sectors adjusted for price changes. The committee also looks at monthly estimates of real GDP such as those prepared by Macroeconomic Advisers (see http://www.macroadvisers.com). Although these indicators are the most important measures considered by the NBER in developing its business cycle chronology, there is no fixed rule about which other measures contribute information to the process.
Figure 1 shows the recent movements of quarterly real GDP superimposed on the average movement around troughs over the previous six recessions. GDP reached a peak in the fourth quarter of 2000. This was followed by contraction during the first three quarters of 2001 and growth since then. According to revised data released in September 2003 (http://www.bea.doc.gov/bea/newsrel/gdp203p.htm), real GDP increased at an annual rate of 3.3 percent in the second quarter of 2003, and 1.4 percent in the first quarter.
Figure 2 shows the movements in real personal income less transfers. Real personal income fell in early 2001. It reached its low point in October 2001 and then generally rose throughout 2003, reached its highest level in July 2003. It fell slightly in August, the most recent reported month. A comparison of Figures 1 and 2 shows that personal income has grown less rapidly than real GDP. The reasons for this are discussed in the frequently asked question on this topic below.
Cesar Conda on John Kerry, Bill Clinton, George W. Bush & Recession on NRO Financial
A key issue this election season one which some observers believe will determine the outcome of the presidential election is whether the recession began in the last quarter of 2000 or during the first months of the Bush presidency. Granted, even if the truth is that the recession began in the days after George W. Bush's inauguration, most reasonable people would conclude that a president cannot on a dime turn a $10 trillion economy one way or the other. However, data and supporting analyses from economists indicate that the recession began well before Bush took office, making political criticism of the president on the jobs issue even more inappropriate.
According the National Bureau of Economic Research (NBER), the unofficial arbiter of business cycles, the recession began in March 2001 and ended in November 2001. NBER analyzes four data series from the U.S. Department of Commerce, the Federal Reserve Board, and other government sources. While previously NBER indicated the recession started in March 2001 (it has not formally revised that date), official revisions of the data indicate that the recession started earlier than that.
For example, under revised calculations, real disposable income peaked in October 2000, rather than steadily rising in 2000 and early 2001 as indicated in the original data. Industrial production/manufacturing and trade sales both peaked in June of 2000, instead of September and August, respectively. Non-farm payroll employment peaked in February 2001, not March 2001. And monthly gross domestic product, which the NBER recently announced will be included in dating recessions, also peaked in 2000.
There is a lot more out there in reference to the early 2000 recession.
