The National Bureau of Economic Research Business Cycle Dating Committee met by conference call last Friday and declared the recession started last December.  This is important for economists, but it can be very frustrating for economic policymakers.  Invariably, economic policymakers want to know why it takes almost a year to declare the start of the recession.  They might have acted differently had they known.  The short answer is that data lags, data is revised several times, and data often conflict on when a recession started or ended.  Combat commanders talk about the "fog of war," and economic policymakers face similar uncertainties and pressures to act.  Fortunately, our economic policymakers acted early this year and have thrown massive amounts of fiscal and monetary policy stimulus at this recession.  It didn't stop the recession from happening, but it almost certainly made it less severe.  Fortunately, we'll never know how severe this recession would have been had nothing been done to counteract it.

The Deficit Control Act of 1985 (otherwise known as Gramm-Rudman-Hollings) required the Congressional Budget Office to issue a "low growth report" whenever it projects two consecutive quarters of negative real GDP growth from the past quarter until a year following the current quarter or when the Commerce Department has reported real GDP growth of less than one percent in the most recent quarter and the preceeding quarter.  Such a report could trigger a resolution to suspend budget enforcement procedures, but Congress has rejected such resolutions when it had the opportunity as noted in this Congressional Research Service report.  The low growth report requirement expired on September 30, 2006, but it had already established in the public's mind that two consecutive quarters of negative real GDP growth equaled a recession.

NBER looks to broader measures of economic activity to make its recession dating determinations.  It puts the most weight on payroll employment, but it considers real gross domestic product, real domestic income, real personal income less transfers, real manufacturing and wholesale and retail sales, industrial production, and employment as measured by the household survey as well.  These data mark the beginning of the recession as early as last November and as late as last July.

As an economic policymaker, you can't wait until NBER decides the data is conclusive enough to mark an economic downturn.  Members of Congress hear from people suffering back home long before that.  In this case, what started out in late 2006 as a housing slump concentrated in California, Nevada, Arizona, and Florida, and an ongoing manufacturing slump in the upper Midwest, turned until a recession across the country a year later.  Early this year, opinion was still mixed among economists whether we had entered a recession, but when credit markets seized up earely this summer, few doubted that would plunge the real economy into recession, and it did.

Marking the end of a recession is equally difficult because different sectors and different regions of the country emerge from recession at different times, and some areas, like Michigan, never seem to emerge.  I look forward to NBER declaring this recession over as soon as possible, but I don't expect it to until almost a year after it ends.  That could be as early as a little over a year from now, or it could be as late as nearly two years from now.  This looks like a longer and deeper recession than any of us have experienced in our lifetimes.