February 10, 2004, 8:42 a.m.
After Further Review . . .
Did the late recession start under Clinton?

By Greg Kaza

Revised economic data may suggest that the U.S. recession actually started in late 2000 while Bill Clinton was still president, not the March 2001 peak established by the nonpartisan National Bureau of Economic Research. Three members of the NBER's Business Cycle Dating Committee recently stated that the recession may have started earlier, although any decision will not be made until more revised data are available.

The seven-person NBER panel, considered the official business-cycle umpire, uses a broad array of indicators. These include industrial production, real personal income, and nonfarm payroll employment. The nonfarm number peaked in March 2001, leading the panel to initially conclude that the recession started that month.

The panel also "places considerable weight on real GDP and other output measures," according to a recent NBER memo. Real GDP (inflation-adjusted gross domestic product) has grown significantly in the nine quarters since November 2001 when the recession ended (see "Umpire Made the Right Call")

The NBER panel also looks at monthly real GDP estimates, which appear to have peaked earlier than March 2001. Their memo explained, "The specific series the committee has been looking at is augmented monthly GDP prepared by Macroeconomic Advisers, a consulting firm." Much of quarterly GDP is published monthly by government economic agencies. "Macroeconomic Advisers aggregates them," the memo continued, "and then uses a simple statistical procedure to augment the resulting totals so that the monthly estimates for each quarter are consistent with the Commerce Department's official quarterly figure."

The monthly GDP data is subject to revision, but appears to have peaked between November 2000 and February 2001.

It is unusual — although not unheard of — for the NBER to make minor changes to cycle dates. The most recent change occurred in 1975, and any revision of the March 2001 peak is likely to occur only after considerable study. The memo explained, "The committee would change the date of a recent peak or trough if it concluded that the date it had chosen was incorrect."

Technical debates about cyclical turning points have occurred between economists for decades. An important book in the literature, Measuring Business Cycles, by then-future Federal Reserve Board chairman Arthur F. Burns and Wesley C. Mitchell, was published by the NBER in 1946. Burns acknowledged that "the question of whether one or more 'extra' business cycles" occurred in the mid-1930s (March 1933 to May 1937) was a legitimate issue to examine. He concluded that another recession did not occur under the New Deal, although that has not stopped other economists from challenging the NBER's chronology — which dates to the mid-19th century. Victor Zarnowitz, the panel's senior member, bested a senior Federal Reserve economist in a 1963 exchange in the Journal of Business. The Fed economist had challenged the NBER's chronology in the 1948-49, 1953-54, and 1957-58 recessions.

However, while economists may dissect the dating of the latest recession, they will respect the umpire's call. The more important question is, What causes these cycles? An excellent survey is featured in Business Cycles, by Mr. Zarnowitz, one of the three NBER panel members to recently comment on the dating of the last recession. (The survey includes reviews of the works of R.G. Hawtrey, John Maynard Keynes, Friedrich Hayek, Joseph A. Schumpeter, Milton Friedman and Anna J. Schwartz, and R.E. Lucas and Hyman P. Minsky.)

Economists understand expansions and recessions better than partisans. They are (or should be) nonpartisan. The political irony is that only eight months ago partisan Democrats insisted the recession had not ended. Today they find themselves backtracking on yet another front. Not only has the recession ended under President George W. Bush, it may have officially started under President Bill Clinton.

— Greg Kaza is executive director of the Arkansas Policy Foundation, a non-profit economic research organization in Little Rock.