Last Friday, the Bureau of Economic Analysis (NBER) reported that Real Gross Domestic Product (RDGP) rose at a seasonally adjusted rate (SAR) of 5.7% in the fourth quarter of 2009 (3.4% of this was a change in real private inventories.) This followed a rise of 2.2 % in the third quarter. The general rule of thumb used by economists is that two consecutive quarters in a new direction signals a new phase in the business cycle. So the recession is over, right?
Well, maybe. The Business Cycle Dating Committee (BCDC) within the National Bureau of Economic Analysis has the official word on such matters. They dont use the two quarter rule of thumb. Rather the committee is looking for a widespread change in economic activity that often is reflected in RGDP. Their analysis, however, differs in a number of ways.
To begin with they are looking at monthly data and its chronology. Second, they look at a range of indicators, not just RGDP. GDP measures the product side of the economy. The committee also looks at the analogous income side of our economy. In particular, they examine Real Income minus Transfer Payments. At times these two sides differ in magnitude and change from previous periods. Other indicators the BCDC considers significant include employment, real manufacturing, wholesale and retail sales, as well as industrial production. Besides looking for a simple positive or negative rate of change, they are also examining the magnitude of the change in economic activity. It is often six to eighteen months past a turning point when the Dating Committee declares it as the official turning point. They want to leave no doubt of the change and exactly where it occurred.
As noted in a previous post, the Conference Boards Coincident Indicators (CI) index stopped declining in July. Since August, the CI and has had ever so slight growth month over month. This would set the stage for somewhere around August to have been the business cycle trough, the end of the recession and the beginning of the recovery.
The natural question that arises now is how do the series the BCDC is looking at compare to the quarterly RDGP changes? Are they in alignment or are there questions hanging yet?
It appears there is still some uncertainty. Some measures have not turned, turned long enough or strong enough. The remaining issues are particularly acute in Employment and Real Income. I will have more on this in an upcoming post.
