U.S. Economy’s Slide Officially A Recession

The recession is now official.

The Internet-fueled economic boom of the 1990s busted in March, the Business Cycle Dating Committee of the Cambridge-based National Bureau of Economic Research (NBER) announced yesterday.

According to the NBER Committee—a team of six economists, including two Harvard professors, who definitively decide when and whether the economy has turned—the longest recorded period of economic expansion in U.S. history spanned the 10 years from March 1991 to March 2001.

The announcement should have little effect on the economy, according to Martin S. Feldstein ’61, NBER’s President and Harvard’s Baker Professor of Economics. Feldstein said everyone already realizes the economy is in decline.

“Our purpose is not to surprise the world,” Feldstein said. “Rather it is to help people track how this cycle is behaving in relation to other cycles.”

Traditionally, a recession is defined as two successive quarters of decline in the growth of the Gross Domestic Product (GDP). But the Business Cycle Dating Committee makes its decisions independent of GDP changes. The GDP has had one quarter of economic contraction, but information is not yet available on the current quarter.

But by yesterday’s announcement, the recession was obvious, Feldstein said.

“It was not difficult to decide that we were in a recession,” Feldstein said. “Putting a date on it was a little bit harder.”

The committee chose to trace the recession back to March, even though the past two months—after the attacks of Sept. 11—have further weakened the economy, according to committee member and Kennedy School of Government Professor Jeffrey A. Frankel.

“The economy had clearly slowed down already, but the question was—had it slowed down enough to call it a recession,” Frankel said. “What’s happened over the last two months in terms of the economic statistics was enough to convince us that there clearly is a recession.”

By examining monthly data on four factors—industrial production, employment, real income and wholesale-retail trade—the committee reaches its own conclusions on the nation’s economic direction.

But not all indicators pointed to the same conclusion in the last period. Three of the indicators fell off in recent months, but the falls happened at different times. Real income has continued to grow.

“The different statistical indicators show different things,” Frankel said.

The six economists conferred over e-mail and in conference calls to put a final date on the recession, according to Frankel.The committee finally focused on employment data, which showed a peak last March as well as significant downturn over the past two months.

“We felt that the employment was the key series,” Feldstein said.

Frankel said the prevailing view among economists is that the recession is about two-thirds through.

“The common forecasts that are out there are that the economy is up for recovery in 2002,” Frankel said. “I don’t see any particular reason to deviate for that.”

But Frankel said he doesn’t expect an immediate and dramatic boom next year.

“Some of the predictions for rapid growth out there seem to me a little

optimistic,” he said.

Frankel has been on the committee for eight years, and has never before had to participate in a discussion about the turning of the economy.

“There’s sort of a joke in universities that the best committees to be

appointed to are the ones that never meet, and up until now it was this one,” Frankel said.

—Staff writer Lauren R. Dorgan can be reached at dorgan@fas.harvard.edu.