Did US Recession Start Last June?
THE opera ain't over until the fat lady sings, the old saying goes. And for the economic expansion that began in the United States in November 1982, the fat lady could sing next week. The fat lady in this case is a seven-economist committee of the National Bureau of Economic Research (NBER), a nonprofit think tank based in Cambridge, Mass. It determines the official dates for the start and conclusion of economic expansions and recessions. Those dates are then used by government economists in publications such as Business Conditions Digest, turned out by the Department of Commerce.
One member of the NBER's Business Cycle Dating Committee, Geoffrey Moore, was trying this week to round up the other members for a get-together at the annual meeting of the American Economic Association in Washington right after Christmas. If successful, Dr. Moore will suggest to the group it choose last June as the starting date for the recession.
Most economists, though reckoning that a recession has already begun, probably would say it started in the fall. The revised estimate of national output for the third quarter, released Wednesday, shows the overall economy was still growing, though at a weak 1.4 percent real annual rate. That's down from an earlier estimate of 1.7 percent after removing inflation. In the current quarter, gross national product (GNP) is widely seen as declining at a 2 or 3 percent real rate.
Certainly the Federal Reserve Board is acting like the economy is in trouble. It has lowered short-term interest rates more rapidly in recent weeks, and on Tuesday dropped the discount rate from 7 to 6.5 percent. That's the interest rate the Fed charges on its loans to commercial banks. Changes in that rate are primarily symbolic in nature - a signal of the Fed's intentions.
``Action was taken against the background of weakness in the economy, constraints on credit, and slow growth in the monetary aggregates,'' the Fed announcement said.
Moore, perhaps the nation's top analyst of the business cycle, has chosen June as the start of the recession because some important measures of aggregate activity peaked in that month. These include total employment, nonfarm payroll employment, and nonfarm employment hours. Unemployment began to rise in the same month. Real personal income peaked in August, and industrial production in September.
Also, Moore suggests that output in the third quarter in fact grew at an even slower rate than the official Commerce Department estimate. In measuring real GNP, the Commerce Department must use a ``deflator'' to remove the impact of inflation from measures of output compiled in current dollars. Moore argues that a different deflator (``gross domestic purchases deflator'') is more appropriate than that used by Commerce in regard to the net exports numbers. Using that alternative deflator reduces the real growth rate to 0.4 percent in the third quarter.
The rough, popular measure for determining a recession is two consecutive down quarters in real GNP. But the NBER committee uses more sophisticated criteria. A recession, Moore notes, could have started in June though the GNP estimate doesn't show a decline until the fourth quarter. Another example: real GNP could drop sharply in the fourth quarter, move upward modestly in the first quarter of 1991, and drop again decidedly in the second quarter, and that too would qualify as a recession, says Moore, who is director of the Center for International Business Cycle Research at Columbia University.
So far Moore figures the recession will be ``fairly serious'' - that is, of average scope and severity. This means initial signs of recovery could start appearing next spring. An ``international recession,'' by depressing US exports, would make it worse, he says. Already there are recessions under way or anticipated in most Anglo-Saxon nations: Canada, Britain, Australia, and New Zealand. Leading indicators - designed to show where an economy is headed - are down for Japan, France, and Italy. They are positive only for Germany and South Korea.
What can be done to moderate the recession?
The Fed should push interest rates lower, says Moore. That could stimulate housing and other business activities.