Thursday, December 11, 2008

Vital Signs: December 2007 was peak of US Economy according to NBER

Straying away from any specific company for this post but looking at the vital signs of the economy, the National Bureau of Economic Research (NBER) met on November 28, 2008.  The committee determined that "a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months."

A few other excerpts from the report illustrate the NBER's decision-making and key metrics:

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.

Because a recession is a broad contraction of the economy, not confined to one sector, the committee emphasizes economy-wide measures of economic activity. The committee believes that domestic production and employment are the primary conceptual measures of economic activity.

The committee views the payroll employment measure, which is based on a large survey of employers, as the most reliable comprehensive estimate of employment. This series reached a peak in December 2007 and has declined every month since then.

The committee identified December 2007 as the peak month, after determining that the subsequent decline in economic activity was large enough to qualify as a recession.
More details on this pronouncement are found here.

The most important next question on executives' minds is how long will the recession last? There is clearly not an easy answer as evidenced by a recent poll in Future Tense.  The article summarizes a recent poll of executives, 16% of which believe they are in the dark when it comes to forecasting future revenues!