It's official. The longest expansion in US history ended in March, according to the official arbiter of business cycles.
The National Bureau of Eco-nomic Research's Business Cycle Dating Committee made that determination following monthly postings on its website since April walking us through the process by which the decision is made.
At 10 years to the day, the most recent expansion exceeded the previous record of 106 months from February 1961 to December 1969.
PHOTO: AP
What was it that impelled the six gentlemen on the dating committee to act now to date the recession that started eight months ago? "The committee makes this determination by asking itself hypothetically what decision it would make if a turnaround in the economy started just after the most recently observed data," the committee said in a press release on Monday.
If it satisfies itself that the period would meet the qualifications of a recession -- "a significant decline in activity spread across the economy lasting more than a few months" -- even if economic activity accelerated, then it proceeds to date the peak.
"Prior to the arrival of the data for October 2001, the committee was not sure that the contraction met the criteria," the NBER said.
So Sept. 11 was key to March 2001 -- key in convincing the committee members that March represented a peak in the business cycle and maybe key in triggering another leg down in economic activity as well. The sharp curtailment of commerce following the terrorist attacks on the World Trade Center and Pentagon was the final blow to an economy teetering on the brink of recession as a result of the bust in capital spending following a long boom.
Would the economy have muddled through if Sept. 11 never happened? We'll never know. The economy's detractors can point to the relentless decline in industrial production since the peak in September last year.
Industrial output, which is down 6.5 percent since the peak, is one of the four coincident indicators the dating committee uses to assess the economy. The other three are employment, personal income less transfer payments adjusted for inflation, and manufacturing and trade sales, also adjusted for inflation.
The economy's defenders can say that manufacturing, the economy's weakest link, had stabilized prior to the attack and was emitting nascent signs of recovery. The National Association of Purchasing Management's index of new orders showed orders increasing in August and September after 11 consecutive monthly declines. Where new orders go, output follows.
As recently as Nov. 9, the NBER dating committee was still unwilling to declare a recession underway, observing that one of the four indicators -- personal income -- "has behaved differently" than in past recessions. Despite income's oppositional behavior, the committee bit the bullet today and made it official.
There is nothing particularly remarkable about six economists putting a date on what everyone agrees is a recession. Often the committee declares a business cycle peak well after the business cycle trough. For example, the July 1990 peak was announced on April 25, 1991, a month after the recession ended. The January 1980 peak was announced on June 3, 1980, one month before the economy peaked again before turning down.
Northern Trust Corp director of economic research Paul Kasriel says the dating game is "a good sign." "The OECD just marked down its economic outlook," as did the IMF, Kasriel says.
"[San Francisco Federal Reserve president Robert] Parry said he doesn't see things turning around early next year. I realize news travels slowly to the West Coast."
Taken in conjunction with rampant reporting of deflation, even as industrial commodity prices start to turn up, "these are all bullish signs," he said.
What's more, with the manufacturing recession predating the peak in employment by six months, "the inventory cycle is already far advanced," Kasriel says.
And that could provide an added kicker, as it usually does, once demand picks up.
Businesses are more downbeat than consumers these days, according to Ram Bhagavatula, chief economist at Royal Bank of Scotland Capital Markets.
"All business decisions since Sept. 11 are being made in favor of lower inventories and lower output," Bhagavatula says.
Hiring plans for the first quarter are lower than in the last recession, according to the Manpower Inc. survey. "Business is treating October's bounce back in sales as a flash in the pan," Bhagavatula says.
What if they're wrong? Autos have flown out of dealer showrooms, courtesy of 0 percent financing. Even though auto inventories are near record lows, with many popular models unavailable, manufacturers have shown no inclination to increase production schedules.
The first official shopping weekend of the Christmas season produced upbeat results, with discounter Wal-Mart Stores Inc.
setting a one-day record on Friday. TeleCheck Services, the world's largest check acceptance company, said same-store sales rose 2.4 percent more on the day after Thanksgiving than the same day last year, which was a dud all around for retailers.
"Any mismatch between rising demand and constrained production is likely to have its biggest impact in the first quarter 2002," Bhagavatula says.
Caroline Baum is a columnist for Bloomberg News. The opinions expressed are her own.
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