Thursday, April 03, 2008

What did the New York Times really say about Bernanke and recession?

Sometimes I have a lot of trouble following stories by The New York Times online as they get revised and cloned on the fly. Yesterday I found a story by Steven Weisman entitled "Bernanke Nods at Possibility of a Recession" that led with:

In his bleakest economic assessment to date, the Federal Reserve chairman, Ben S. Bernanke, said Wednesday that the American economy could contract in the first half of 2008, meeting the technical definition of a recession ...

I have a quibble with his reference to "technical definition", but I will get to that in a moment. Meanwhile, today I see a separate story by the same reporter entitled "Fed Chief Sees Possible Contraction in First Half" which appears to be a revision or clone or rewrite of that first story and leads with this subtly different paragraph:

In his bleakest economic assessment to date, Ben S. Bernanke, the Federal Reserve chairman, said Wednesday that the American economy could contract in the first half of 2008, meeting the strict definition of a recession ...

Oddly, they switched from "technical definition" to "strict definition", neither of which is correct. In fact, I suspect that the reporter is referring to the informal definition since later in the article it says:

But his words were cautious, skirting the use of "recession," which economists define as two consecutive quarters of contraction in the gross domestic product, the nation's output of goods and services.

I am sorry, but serious economists know that the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) defines recessions in terms of the months when they start ("peak" of an expansion) and when they end ("trough" or bottom of the contraction). The two-quarter rule is an informal definition used by journalists, commentaters, and other non-economists, as well as careless or ignorant economists, as a rough rule of thumb, but it is not the "strict" definition or even the "technical" definition. The NBER Business Cycle Dating Committee defines a recession as:

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.

That, is the "strict", "technical", "official" definition. Unfortunately, it is not as blindly mechanical and convenient as the informal definition and does take a lot of time, effort, and attention to apply, but it is the gold standard for measuring recessions.

Put simply, the "technical" definition (from NBER) requires a "significant" decline "lasting more than a few months", not merely a "slight" contraction.

I am curious why The Times switched their language from "technical" to "strict", whether they had some specific nuance of meaning in mind or simply considered them as rough synonyms.

Shame on The New York Times for such sloppy and careless financial journalism. Economic activity and recessions are far too important to be treated so cavalierly and improperly.

Incidentally, Bernanke was himself on the NBER Business Cycle Dating Committee back in 2001 when the last recession started.

-- Jack Krupansky

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