Monday, April 07, 2008

Is Martin Feldstein really the head of the group that decides whether the economy is in recession?

The Reuters headline of "NBER's Feldstein says U.S. sliding into recession" is reasonable, but the lead paragraph is misleading:

Martin Feldstein, who leads the group that is considered the arbiter of U.S. recessions, said on Monday that he personally believes the economy has been sliding into a recession since December or January.

While it is true that Feldstein heads the National Bureau of Economic Research (NBER), he does not head the group within NBER that declares the start and end dates of recessions. That group is called the Business Cycle Dating Committee (BCDC) and is headed by Robert Hall. As per the most recent BCDC web page:

Q: When was your committee first formed?

A: When Martin Feldstein became president of the NBER in 1978. Robert Hall has chaired the committee since its inception.

Q: How is the committee's membership determined?

A: The President of the NBER appoints the members, who include directors of the macro-related programs of the NBER plus other members with specialties in business-cycle research. The current membership is:

Robert Hall, Chair -- Director of NBER's Program of Research on Economic Fluctuations and Growth
Martin Feldstein -- President of NBER and NBER Research Associate, Program in Public Economics
Jeffrey Frankel -- Director of NBER's Program on International Finance and Macroeconomics
Robert J. Gordon -- NBER Research Associate and Professor, Northwestern University
Christina Romer and David Romer -- Co-Directors of NBER's Program on Monetary Economics
Victor Zarnowitz -- NBER Research Associate and Professor Emeritus, University of Chicago

Yes, Feldstein is a member of the committee, but not its lead. Robert Hall chairs the BCDC. Feldstein is expressing his personal opinion on the economy, but does not appear to be speaking on behalf of the BCDC, or even necessarily NBER.

The article does correctly note that "The group has not officially declared the U.S. is in a recession", but the reporter is once again incorrectly referring to the parent organization, NBER, rather than the decision-making BCDC group itself.

According a Bloomberg article dated March 14, 2008, Hall's most recent statement on the economy was dated March 7, 2008:

"Given the retrospective nature of our process, no determination of a peak in activity is likely in the next few months," said Robert Hall, a Stanford University economist who leads the NBER's business-cycle dating committee, said March 7.

In any case, the Reuters article tells us:

"I think that December/January was the peak and that we have been sliding into recession ever since then," Feldstein, the president of the National Bureau of Economic Research, said on CNBC television.

Feldstein said he believes that the recession will linger. "I think it could go on longer" than the "last two recessions (which) lasted eight months peak to trough," he said, adding the current recession could last about twice as long.

He also said the first quarter U.S. gross domestic product number will be a "misleading" number in that it may not reflect the economy was in a recession in the first three months of the year.

Feldstein is clearly jumping the gun. A few months from now he may be correct in retrospect, but for now he is doing his own committee a professional disservice by failing to step aside and let them do their job on the timescale that they feel is most appropriate.

Just to be clear, the NBER Business Cycle Dating Committee has not yet "called" a recession for 2008.

-- Jack Krupansky

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