This hodge-podge of justifications didn’t seem to diminish the impact of the NBER’s recession determinations, with Harvard economist Jason Furman recently dredging up an array of media mentions from the 1960s and 1970s that make clear that its verdicts—in those days often the work of a single staffer, Geoffrey Moore—were seen as definitive.
When Harvard’s Martin Feldstein became NBER’s president in 1977, he moved the organization’s headquarters to Cambridge, Massachusetts, and repositioned it from a focus on business cycles and a few other macroeconomic topics to policy-relevant academic research on all manner of economic questions (three-quarters of its $34 million budget in the 2020-2021 fiscal year came from government research grants, with the U.S. Department of Health and Human Services and National Science Foundation the chief funders and the GDP-measurers at the Commerce Department not represented at all). But Feldstein, who took a leave from NBER and Harvard to serve as chairman of President Ronald Reagan’s Council of Economic Advisers from 1982 to 1984 and remained a leading Republican economic sage until his death in 2019, was publicity-savvy enough to retain the organization’s responsibility for determining recessions. The Business Cycle Dating Committee that he created in 1978, composed mostly of outside economists, has if anything attracted more attention than its predecessors, in part because it announces its decisions in a consistent way while earlier recession calls were sometimes tucked in the back of NBER publications.
Right now the committee is holding fire despite two consecutive quarters of shrinking GDP, partly because it always waits a while before making a recession call but also because, as several current and former members made clear to Bloomberg’s Steve Matthews last week, the negative GDP readings are so far at odds with most key monthly economic indicators and those indicators carry more weight.
By now I think it should be clear that this reticence to declare a recession is not the result of some plot organized by the Biden administration and the liberal media. But yeah, it is kind of confusing and possibly unnecessary. As Christina and David Romer—who happen both to be members of the Business Cycle Dating Committee—put it in their January 2020 paper:
If a modern time-series econometrician with no knowledge of the history of business cycle dating or the concept of a recession were handed the time series for postwar U.S. GDP growth, they would conclude that the data pointed to a division of short-run fluctuations into two types of periods that correspond closely to the recessions and expansions identified by NBER researchers over the past century.
That speaks well for the NBER researchers, but it also raises the question of why we can’t just leave the work to an econometric model. The Romers point to a much-cited 1989 paper by University of California at San Diego economist James D. Hamilton that used a statistical technique known as Markov switching to differentiate between two different regimes of GNP growth in the U.S., identifying periods of negative growth that pretty much coincided with the NBER recession dates. In an August 2020 revision of their paper, the Romers updated the model with GDP numbers through 2019 with similar results and got an even better fit by adding nonfarm payroll employment and the unemployment rate to the mix.
They also proposed an approach that aims to identify periods of economic slack rather than decline, in part because periods of negative growth will become more common in developed countries as population growth slows or turns negative, while if Japan’s experience so far is any guide these won’t always be accompanied by rising unemployment or other signs of distress. In this case, GDP growth, employment and unemployment are compared to trend rates estimated by the Congressional Budget Office.
I’ve asked the Romers for the current recession probabilities churned out by their models, and will update here if I get them. But with employment growth still strong as of June and unemployment nearly a percentage point below the CBO’s noncyclical (formerly known as natural) rate, any model that includes those metrics is unlikely to conclude that the U.S. is in a recession—yet.
Justin Fox is a Bloomberg Opinion columnist covering business. A former editorial director of Harvard Business Review, he has written for Time, Fortune and American Banker. He is author of The Myth of the Rational Market.