The trough marks the end of the declining phase and the start of the rising phase of the business cycle. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion. The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December The basis for this decision was the length and strength of the recovery to date.
The committee waited to make its decision until revisions in the National Income and Product Accounts, released on July 30 and August 27, , clarified the time path of the two broadest measures of economic activity, real Gross Domestic Product real GDP and real Gross Domestic Income real GDI. The committee noted that in the most recent data, for the second quarter of , the average of real GDP and real GDI was 3.
Identifying the date of the trough involved weighing the behavior of various indicators of economic activity. The estimates of real GDP and GDI issued by the Bureau of Economic Analysis of the U. Department of Commerce are only available quarterly. Further, macroeconomic indicators are subject to substantial revisions and measurement error. For these reasons, the committee refers to a variety of monthly indicators to choose the months of peaks and troughs.
It places particular emphasis on measures that refer to the total economy rather than to particular sectors. These include a measure of monthly GDP that has been developed by the private forecasting firm Macroeconomic Advisers, measures of monthly GDP and GDI that have been developed by two members of the committee in independent research James Stock and Mark Watson, available here , real personal income excluding transfers, the payroll and household measures of total employment, and aggregate hours of work in the total economy.
The committee places less emphasis on monthly data series for industrial production and manufacturing-trade sales, because these refer to particular sectors of the economy. Movements in these series can provide useful additional information when the broader measures are ambiguous about the date of the monthly peak or trough. There is no fixed rule about what weights the committee assigns to the various indicators, or about what other measures contribute information to the process.
The committee concluded that the behavior of the quarterly series for real GDP and GDI indicates that the trough occurred in mid Real GDP reached its low point in the second quarter of , while the value of real GDI was essentially identical in the second and third quarters of The average of real GDP and real GDI reached its low point in the second quarter of The committee concluded that strong growth in both real GDP and real GDI in the fourth quarter of ruled out the possibility that the trough occurred later than the third quarter.
The committee designated June as the month of the trough based on several monthly indicators. First, euro area GDP series constructed for the pre-EMU era reflect not only movements in economic activity but also changes in exchange rates, which are problematic. Second, GDP statistics are sometimes subject to large subsequent revisions, and this makes them an imperfect indicator of current business cycle conditions. Third, measured GDP does not always move in parallel with its individual major components which may indeed be moving in different directions or other macroeconomic aggregates such as employment.
Fourth, these variables are known to display more cyclicality than GDP and are useful in strengthening opinions when the GDP data do not seem very decisive. They are also available with the exception of investment earlier and at a higher frequency than GDP. For recent euro area data since the end of the s we use, where possible, official Eurostat statistics and focus primarily but not exclusively on 1 quarterly GDP Eurostat source ; 2 quarterly employment OECD ; 3 monthly industrial production Eurostat ; 4 quarterly business investment Eurostat ; 5 consumption and its main components Eurostat and ECB.
For country data, we use Eurostat and OECD sources and monitor Germany, France and Italy systematically. Historical euro area data since the s are provided by the OECD and the ECB. We mainly use the ECB source. For national data, we have used the OECD and the IMF. We do not use a fixed rule to weight different data series, although we give primary emphasis to GDP. The committee informally assesses the depth, duration and severity of a recession.
The NBER's Business Cycle Dating Committee
The need for a business cycle dating committee
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