Negative growth in two consecutive quarters meets a common definition for a recession — and is the official way to make that claim in some countries.
But not in the U.S., where a relatively low-profile group — the National Bureau of Economic Research’s (NBER) Business Cycle Dating Committee — is tasked with making an official call on whether the country is in a recession.
So what is this group and how does it make its proclamations? The group within the NBER that actually makes the recession call is the Business Cycle Dating Committee. It has eight members, who are among the leading economists in the country, and who work at leading academic institutions across the country: Robert Hall of Stanford, Robert Gordon of Northwestern, James Poterba of the Massachusetts Institute of Technology, Valerie Ramey of the University of California- San Diego, Christina Romer of UC-Berkeley, David Romer of UC-Berkeley, James Stock of Harvard and Mark Watson of Princeton. Christina Romer served as chair of the Council of Economic Advisers under President Obama, and Poterba is the chair of the NBER. It takes into account the depth, diffusion and duration of the decline in economic activity. While the committee’s view is that each “must be satisfied individually to some degree, the extremes revealed by one criterion may partially offset the weaker evidence from another.” Economists say the NBER looks at many different indicators to make a call on whether the economy is in a recession. “It really looks at a wide variety of economic indicators to make that determination,” said Alex Durante, an economist at the Tax Foundation think tank. “They look at employment, personal income, durable goods, housing permits — so GDP is certainly part of it, but they look at other indicators as well.” Employment is a factor that is critical in looking at today’s economy. The US job market is hot, even though the Commerce Department found that the economy has contracted in the last two quarters. The White House, which has pushed back against the idea of ​​a recession, pointed out that unemployment is at a historic low of 3.6 percent. The panel did find that a recession occurred in April 2020, after much of the US economy shut down at the start of the coronavirus pandemic. In July 2021 it concluded that the recession had lasted two months – the shortest on record in the nation’s history. Durante said a statement about the current recession — if indeed there is one — likely won’t be made until 2023. “This is obviously difficult for policymakers who want to stay on top of these conversations, but typically, the NBER doesn’t make the determination until after a year,” he said. “That’s because they want to make sure they have enough data, but also because data tends to be revised.” Indeed, the Commerce Department’s figures, which found the economy contracted by 0.9% in the second quarter, are likely to be revised. It’s a small enough reduction to fit within the standard margin of error by which the department can correct its predictions in the first draft. The NBER’s origins lie in the oil industry. According to a brief history of the NBER written in 1984 by former Vice President for Research Solomon Fabricant, the agency traces its history in part to initiatives taken in the early 20th century by the fledgling Rockefeller Foundation, the philanthropic body created by the enormous oil fortune created by John D. Rockefeller. In 1914, Harvard Business School Dean Edwin Gay “had taken the lead, at the request of the executive secretary of the newly formed Rockefeller Foundation, in the preparation of a memorandum outlining the organization and operations of an economic research institute analogous to the already established Rockefeller Institute for Medical Research . The proposed institute would engage in scientific and impartial research “of a scope that is beyond the power of our existing university research facilities,” Fabricant wrote. Half a century later, the Commerce Department began citing the NBER’s work on the business cycle, which gave it a kind of government legitimacy, according to the Washington Post. But the NBER’s research has not been without controversy. A recent investigation by The Guardian found that Alan Kruger, former chairman of the White House Council of Economic Advisers, was paid $100,000 by Uber while writing an article published in the NBER about Uber claiming that it was a creator of good jobs. Published in 2016 as part of a series of NBER working papers, the disclosure of the payment attracted academic criticism. An NBER spokesman said Kruger’s work as an Uber consultant was clearly exposed. “The cover of the NBER working paper disclosed the fact that Alan Krueger was working as a consultant for Uber when the paper was written and that his co-author was an Uber employee and shareholder. The same acknowledgments were included in the peer-reviewed version of the paper published by the Industrial and Labor Relations Review,” the statement emailed to The Hill said. The NBER is a research institution that receives money from the government but also earns money from investments, according to its website. Pelosi begins Asia trip without mentioning Taiwan bill Manchin-Schumer could reduce deficit. Inflation — that’s debatable “NBER’s research is supported by grants from government agencies or private foundations, by corporate and individual contributions, and by income from NBER’s investment portfolio,” the website states. She says the groups that contribute most to her research projects are the National Institutes of Health, the National Science Foundation, the Social Security Administration and the Alfred P. Sloan Foundation. “NBER conducts research, but does not make policy recommendations or advance advocacy based on research findings,” the group says itself.