A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.



Recession's Last Gasp?

A panel of leading economists, widely recognized as the official arbiter of U.S. business cycles, appears ready to confirm what independent analysts have been saying for some time: The recession of 2001 is history.

Stanford University economist Robert Hall, chairman of the National Bureau of Economic Research committee, declined to comment on the panel's deliberations but suggested that a reporter "stay tuned" for a pending announcement on its Web site.

Economists who study business cycles generally agree that the recession, which officially began in March 2001, ended late that year or early in 2002. After two quarters of shrinking economic output, the U.S. economy has been growing for seven straight quarters, assuming, as most forecasters do, that gross domestic product has continued to expand in the current period, which ends June 30.

None of which is to say the economy is in great shape, of course... The sagging economy was a main factor motivating congressional support for a $350 billion tax cut package signed into law last month. And the Federal Reserve is expected to cut short-term interest rates next month for the 13th time since early 2001 in a bid to fuel growth. But given the excess capacity in the manufacturing sector and weak demand by businesses, the trend of subpar growth is likely to continue for some time said Lakshman Achuthan, managing director for the Economic Cycle Research Institute.

By all the measures other than employment, it is clear the recession ended sometime around the end of 2001, said Achuthan. Personal income is up 1 percent from its cyclical low, and manufacturing and trade sales are up 3.8 percent, he said.

Industrial production, which rose in May after declining for two straight months, also is slightly above its December 2001 low, Achuthan said. Employment, he said, would have hit bottom in December 2002 except for a call-up of some 200,000 military reservists for the Iraq war that distorted the numbers, he said.

"There is some expertise in deciding it, but it is a fairly objective set of criteria," he said, referring to an ending date for the recession. "It's not about how we feel. It represents a clustered movement of those four measures as they relate to various peaks."

Objectively speaking, the economy is in a recovery, he said. "Just politically it can be very tough to say that when the jobs numbers continue to deteriorate, and I think that's part of the struggle."

Treasury Secretary John Snow acknowledged that the jobless rate may rise in coming months but said the prospects for a vigorous recovery are improving steadily.

"I think all the markers are there for a strengthening labor market as growth accelerates this year," Snow told a Money magazine conference. "Conditions for this recovery are looking better and better."

White House press secretary Ari Fleischer said the rallying stock market, which has gained more than 25 percent in the past three months, could be an indication that the economy is poised to accelerate.

After the last recession, the Business Cycle Dating Committee waited 21 months before declaring that economic activity had hit a trough in March 1991. The announcement was made in December 1992, more than a month after voters turned the first President Bush out of office in an election that hinged largely on the economy.

In its latest memo, dated April 10, the committee said it would not make a decision on an ending date for the recession until "it concludes that a hypothetical subsequent downturn would be a separate recession, not a continuation of the past one."