Fisher Investments Editorial Staff
Market Cycles, US Economy

Wonka Wonka Wonka

By, 04/13/2010
Story Highlights:
  • Though mounting evidence suggests the economy's already recovering, NBER announced it's hesitant to declare the recession's over because government data may still face revisions.
  • NBER's calls are typically hindsight affairs, and not only that, they are based on subjective interpretation as well as hard data.
  • No one expects the wonks at NBER to have their timing down—it's not what they do nor aim to do.

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If the National Bureau of Economic Research (NBER) were a sketch comedy group, they'd be a bit remiss in the timing department. After all, the official US business cycle dating committee pinpointed the 2001 recession's start date (March 2001) in November 2001, the 2001 recession's end date (November 2001) in July 2003, and the 2007 recession's start date (December 2007) in December 2008. Now, though mounting evidence suggests the economy's already recovering, NBER announced it's still hesitant to declare the recession's over. We understand NBER has never claimed to be expert timers (nor, to be fair, comedians), but with much of the world growing nicely, it seems like NBER might be the only ones not in on the joke. 

The NBER committee conceded most economic indicators have turned positive, but its economists cannot be confident in pinpointing a trough since available government data may still face revisions. Plus, they fear the (low) possibility the economy contract again soon—the committee doesn't want to mistakenly date the end if we're in midst of a countertrend in a longer downturn, preferring "accuracy" over timeliness. Fair enough, but is there an easier job in the world than declaring a recession over two years after the fact? 

NBER's cautious stance may have some worried about the soundness of the economy today, but the committee's calls are typically hindsight affairs. And they've been much hesitant to date the end of a recession. Since the 1981 recession, NBER's taken about 7.5 months on average to call a recession's start, but it's taken over 16 months on average to call the end. Not only that, these calls are based on subjective interpretation as well as hard data—in each business cycle, the committee can choose to weight various economic indicators differently. For example, the panel weighted unemployment heavily in dating the 2007 recession's start, even though GDP (widely considered a major economic indicator) was positive for both Q1 and Q2 in 2008. 

Based on history, it's likely NBER's rubber stamp will come much later than the recession's actual end date. Already, a spate of economic indicators shows improvements in areas from manufacturing to service industries to debt markets. Not to mention Q4 2009's robust 5.6% GDP rise, which can be taken as a pretty clear sign the economy might be moving in the right direction.  

No one expects the wonks at NBER to have their timing down—it's not what they do nor aim to do. But investors waiting for their official "all-clear" before jumping back into riskier assets like equities will likely have missed out on returns pricing in the economic growth in the meantime. Remember, stocks move ahead of the economy and have already risen over 70% despite no official recession end date. And that's no laughing matter.

 

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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