The National Bureau of Economic Research, an independent group that assigns dates for business cycles, today pronounced that the nation officially entered recession in December 2007. Economists, of course, for months have assumed the nation is in recession. This fall's financial crisis and weakening reports on employment and consumer spending made that clear. The only question was what date NBER would choose as the starting point.
Date confirms speculation
A December 2007 start date has been speculated on for months because that marked the peak of U.S. employment. NBER made that point in its announcement today: "The [Business Cycle Dating] committee views the payroll employment measure, which is based on a large survey of employers, as the most reliable comprehensive estimate of employment.
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NBER said: "A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. ... The committee determined that the decline in economic activity in 2008 met the standard for a recession."
The group considered other points, including gross domestic product and gross domestic income. "Many of these indicators, including monthly data on the largest component of GDP, consumption" -- that is, consumer spending -- "have declined sharply in recent months," NBER said.
GDP dropped 0.2% in fourth quarter 2007; rose in the first two quarters of 2008; and dropped 0.5% in third quarter 2008, according to the government's Bureau of Economic Analysis. Economists expect the fourth quarter to show a significant decline; the downturn picked up speed this quarter with clear signs of weakening consumer spending and rising unemployment.
Effect on consumer confidence
The University of Michigan's Index of Consumer Sentiment fell in November to its lowest point since the brutal 1980 recession. And headlines announcing that the recession is official won't exactly boost confidence this month, or put consumers in a holiday-shopping mood.
NBER's ruling means the previous expansion, starting in November 2001, lasted 73 months. As to how long the recession will last, the NBER's statement said, "The committee does not forecast."
President-elect Barack Obama has good intelligence on NBER: Christina Romer, a U.C.-Berkeley economics professor and expert on the Depression, was on NBER's committee until she resigned Nov. 25 after being named chair of Mr. Obama's Council of Economic Advisers. She didn't participate in a November conference call during which the committee ruled on the recession start date. (Her husband, also an economics professor at Berkeley, remains on the committee.)
Many economists expect the recession to continue until mid-2009, before the business cycle reaches its nadir and the next expansion begins. If that proves true, consider the implication: This would be the longest recession since the Great Depression's recession of 1929-33, surpassing the downturns of 1973-75 (16 months) and 1981-82 (16 months).
The recession is dead-on apparent in advertising and marketing. U.S. measured ad spending turned south in the second quarter, falling 3.7% vs. a year earlier in the sharpest quarterly drop since 2001, according to TNS Media Intelligence. TNS hasn't reported third-quarter data.
Employment on Mad Ave
Ad-industry employment has dropped by 52,000 since hitting its peak in November 2007, according to Ad Age DataCenter's analysis of Bureau of Labor Statistics data.
The stock market, which tumbled early today, fell further after the NBER's announcement. The Dow Jones Industrial Average at mid-afternoon was at 8,368, down 461 points or 5.2%.
A December 2007 start date isn't a surprise, given one informal indicator analyzed by Ad Age: the number of times "recession" appears in The Wall Street Journal. That in the past has loosely tracked the beginning and ending of recessions. Ad Age last January noted that "recession" mentions had surged in December and January to the highest level since 2002, "possibly foreshadowing official proclamation that a recession began in late 2007 or early '08."
"Recession" mentions in October reached their highest point since the 1991 recession, another indication that this storm is gathering strength.