Speaker 1: Last month, December twenty seventeen, marked the ten year anniversary
Speaker 1: of an economic event that probably won't be celebrated anywhere.
Speaker 1: It was the beginning of the deepest recession in the
Speaker 1: United States since the Great Depression in the nineteen thirties. Now,
Speaker 1: we know the economy was in pretty bad shape at
Speaker 1: that time, thanks to the bursting of the housing bubble
Speaker 1: and the early stages of the global financial crisis. But
Speaker 1: how do we know that the recession began precisely in
Speaker 1: December two thousand seven. Today we're going to talk about
Speaker 1: the mysterious process that determines when recessions begin and when
Speaker 1: they end. Welcome to our first Benchmark episode of eighteen.
Speaker 1: I'm Scott landman and economics editor with Bloomberg News in Washington.
Speaker 1: Now I'm Daniel Moss, economics writer and editor at Bloomberg
Speaker 1: View in New York. So, and it's pretty commonly thought
Speaker 1: that two quarters of declining g DP means that a
Speaker 1: recession has begun. But that's not the case in the
Speaker 1: United States, right, That's right. The US is really an outlier,
Speaker 1: certainly in terms of major economies. What most people might
Speaker 1: not know is when it comes to deciding when a
Speaker 1: slump starts and ends, it's up to a small group
Speaker 1: of elite professors from around the country who deliberate in
Speaker 1: secret and then announced their decision to the world. It's
Speaker 1: a little like waiting for the white smoke from the
Speaker 1: Vatican chimney. It's also a lot like those monetary policy
Speaker 1: meetings we cover all the time at Bloomberg, except this
Speaker 1: group makes decisions about events that happened months even a
Speaker 1: year before. In fact, when the recession began in December
Speaker 1: two thousand seven, it wasn't until a full year later
Speaker 1: that this committee announced that that was the actual date
Speaker 1: when the recession officially began. So who are these people? Well,
Speaker 1: our guest today can tell us all about that. His
Speaker 1: name is Robert Hall, and he's a professor of economics
Speaker 1: at Stanford University in California. He is also the chair
Speaker 1: of the Business Cycle Dating Committee of the National Bureau
Speaker 1: of Economic Research, and that's the group that tells the
Speaker 1: world when a US recession begins and ends. He's joining
Speaker 1: us by phone here in Washington, where he's en route
Speaker 1: to an annual meeting of economists in Philadelphia this weekend. Bob,
Speaker 1: thanks for joining us on benchmark. So, Bob, can you
Speaker 1: give us a little history. First of all, how is
Speaker 1: this committee formed and how did it become the accepted
Speaker 1: arbiter of when recessions begin and end in the United States? Sure, well,
Speaker 1: we have to go right back. The National Bureau was
Speaker 1: created in starting the beginning of a great depression. It
Speaker 1: took on this job itself just spontaneously to decide when
Speaker 1: recessions began and ended. It has done someone informally until
Speaker 1: when Martin Feldstein took over the National Bureau and appointed
Speaker 1: me to chair this committee and kind of formalized the
Speaker 1: whole process. So, for example, we know, write an explanatory memo,
Speaker 1: and that memo has made public at a certain time,
Speaker 1: usually about a year after or maybe a year and
Speaker 1: a half after the actual event. So and we've been
Speaker 1: doing that consistently pretty much the same basis ever since.
Speaker 1: And the name National Bureau of Economic Research sounds federal
Speaker 1: in Nightsha. Does it have any relationship with the government. No,
Speaker 1: not a formal relationship. Many people, for example, Feldstine himself
Speaker 1: was Chamber of the Council of Economic Advisors. But the
Speaker 1: National Bureau is a the inter university organization as a
Speaker 1: governing body that universities contribute directors too, and it sponsors research,
Speaker 1: and it sponsors many many conferences and publications. But it's
Speaker 1: basically an academic organization based at universities. Now, how long
Speaker 1: have you been on the Business Cycle Dating Committee and
Speaker 1: been its chairman as well? What's wrong with the way
Speaker 1: many countries do this, Bob? Where I'm from Australia and
Speaker 1: it's by no means limited to Australia. It's easy to
Speaker 1: tell when a recession arrives and ends because there's a
Speaker 1: standard definition of two quarters of contraction in g d
Speaker 1: P marks a recession. What's wrong with that definition? You know,
Speaker 1: a lot of the time, there's nothing wrong with that.
Speaker 1: If you look at our chronology, it frequently coincides with that.
Speaker 1: There's some common sense to that idea. But we are
Speaker 1: sensitive to certain possibilities have arisen. We've had to make
Speaker 1: judgment calls. For example, if there's a pause in the
Speaker 1: economy but it doesn't have the drama and depth of
Speaker 1: what we would call a recession, but it lasts at
Speaker 1: two quarters. So if we had it just a couple
Speaker 1: of quarters where the economy contracted by less than a
Speaker 1: percentage point, each probably wouldn't call that the recession. We
Speaker 1: would just just included in whatever else was going on
Speaker 1: at the time, either a contraction or expansion. So we're
Speaker 1: alert to that possibility. To be honest, it actually hasn't
Speaker 1: arisen very dramatically, and you wouldn't go too far off
Speaker 1: if you adopted that to quarter. We're not we're not
Speaker 1: totally against it and saying it's totally false, but we
Speaker 1: approached this was a little more nuanced, but you probably have.
Speaker 1: You have more precise data in the United States, probably
Speaker 1: a richer data set than most countries in the world.
Speaker 1: We have jobs data in this country that are available
Speaker 1: on a on a very good level of detail. Does
Speaker 1: that help you pinpoint the month where business cycle peaks? Yes. Actually,
Speaker 1: you mentioned one feature that is important, and that is
Speaker 1: we do want to identify turning points in a particular month,
Speaker 1: and the totality of GDP is available only on a
Speaker 1: quarterly basis, so we'd like to fine tune our work,
Speaker 1: and we do that using many different monthly series that
Speaker 1: you mentioned employment, many of the components is output are
Speaker 1: now measured on a monthly basis, even though the GDP
Speaker 1: number itself is quarterly so we look at that too.
Speaker 1: I guess this also gets to some of the challenges
Speaker 1: that people have identified when it comes to measuring economic
Speaker 1: well being purely on the basis of GDP. What else
Speaker 1: do you look at, Bob Well, First of all, let's
Speaker 1: be very clear that we don't claim to be measuring
Speaker 1: the movements of social welfare, and that's an interesting, big topic.
Speaker 1: But we deal with something we call economic activity, which
Speaker 1: in particularly we mean market activity. We're focusing on the
Speaker 1: amount of output that the economy produces and the number
Speaker 1: of jobs that it delivers, but we don't try to
Speaker 1: go beyond that and say that we're doing more than that.
Speaker 1: So I think we should be very clear that those
Speaker 1: more technical measures that we're dealing with. Of course, output
Speaker 1: and jobs are very important. So people are very interested
Speaker 1: by the way in the outcome of our deliberations. We're
Speaker 1: doing something that they're interested in, even though we don't
Speaker 1: say that it measures the totality of welfare. So let's
Speaker 1: go back in time ten years ago. It's December two
Speaker 1: thousand seven. We already know the economy is in fairly
Speaker 1: bad shape at that time, could be in recession already.
Speaker 1: But your committee isn't going to announce a decision until
Speaker 1: about a year later on when the recession actually began.
Speaker 1: What is your committee doing in that time to figure
Speaker 1: it out? What kind of deliberations do you have? Can
Speaker 1: you walk us through that at all? Well, the committee
Speaker 1: the modern era has been based primarily on email. The
Speaker 1: email attachment is the way we deliberate more than anything else.
Speaker 1: And when it looks like the economies in some trouble,
Speaker 1: as it did in late two thousand seven, then informally,
Speaker 1: without necessarily convening something you should call a meeting, we
Speaker 1: start trading data almost entirely through email. Then as things
Speaker 1: come into sharper focus, we generally convene a meeting by
Speaker 1: a conference call. And at that point we've all seen
Speaker 1: each other's ideas about what's happening, and then we deliberate,
Speaker 1: and then finally, usually a year to a year and
Speaker 1: a half later, we have a meeting which actually decides
Speaker 1: when the turning point occurred, the peak of activity, which,
Speaker 1: as you say, we determined occurred in December of two
Speaker 1: thousand seven, we write up a memo. The memo is
Speaker 1: posted on the National Bureau website. It's released to it
Speaker 1: Financial Press and usually as front page news. Well, are
Speaker 1: you ever worried about the security of these email communications?
Speaker 1: It's certainly something we thought about, is in the more
Speaker 1: general context of making sure that we don't create opportunities
Speaker 1: for people to break into the process. We use encrypted email,
Speaker 1: and we use completely secure telephone calls, and the National
Speaker 1: Bureau is a very good record of maintaining the records
Speaker 1: of this process, which are done at National Bureau headquarters.
Speaker 1: So it's a theoretical possibility. It certainly is not one
Speaker 1: that's that's created any problem so far, and it's something
Speaker 1: regarding against the future. And none of you, of course
Speaker 1: strangers to each other, all to the way you see
Speaker 1: the world. You've mentioned the American Economics Association meeting in Philadelphia.
Speaker 1: You do all see each other around the traps, if
Speaker 1: not there at the I m F World Bank and
Speaker 1: other places. Right, sure, not to mention National Bureau conferences,
Speaker 1: which are a very big part of the deal. Let's
Speaker 1: talk a little bit more about the membership of the committee.
Speaker 1: I mean, I see some of the names on your committee,
Speaker 1: like Martin Felts you've mentioned it. It looks to me
Speaker 1: like an economic all star team. I mean, maybe the
Speaker 1: names aren't widely known to the general public, but many
Speaker 1: of them are our household names in the world of
Speaker 1: academia economics departments. How do you go about picking the committee?
Speaker 1: Is there any way I can be on it? I
Speaker 1: know you have to have a track record as an
Speaker 1: academic macro economist, as you have to specialize in the
Speaker 1: study of the subject at hand, which is what happens
Speaker 1: to have put unemployment in other other economy wide variables.
Speaker 1: So we're looking very much at the economy wide movements,
Speaker 1: and the subject of macroeconomics basically covers that. So everyone
Speaker 1: you see here is recognized as a specialist in macroeconomics.
Speaker 1: Are people beating down your door to get on the
Speaker 1: committee or is it kind of accepted practice that you
Speaker 1: come to them? Uh? No, we come to them exactly. Yeah.
Speaker 1: It would be very unfortunate if somebody called me up,
Speaker 1: or called up James Pitterbin said I want to be
Speaker 1: on the committee. That would be That's just not the
Speaker 1: way people behave They wait for us to call them.
Speaker 1: So it is like a papal conclave. You know, I've
Speaker 1: never thought about that, but yes, in that way, it's
Speaker 1: not it's not quite as dramatic. You know, we don't
Speaker 1: meet physically. No one would consider electing the pope on
Speaker 1: the basis conference call. But that's the way we work,
Speaker 1: an email conclave. That that sounds like something for the
Speaker 1: modern era exactly, you know, going by the NBAS definition,
Speaker 1: this current expansion, that worrying is starting to get pretty
Speaker 1: long in the tooth historically. Yes, yes, you're absolutely right.
Speaker 1: And without going into any of the committee's deliberations, which
Speaker 1: we know you can't, are you seeing anything right now
Speaker 1: in our current economic trajectory the United States that gives
Speaker 1: you pause? Oh well, it's easy to think of things
Speaker 1: that give paused, but you know, it's very important to
Speaker 1: understand that we don't operate on a forward looking basis.
Speaker 1: So I guess one thing I can say is that
Speaker 1: there's been no desire in the part of the committee
Speaker 1: to start the process that I described. It's the committee
Speaker 1: right now is everyone's watching. But the macroeconomic news has
Speaker 1: been pretty good lately. And but you know, I would
Speaker 1: have said the same thing at the beginning of two
Speaker 1: thousand seven. So it's been surprising to me in my
Speaker 1: role to see how quickly things change and they begin
Speaker 1: to be concerns and then and then this process that
Speaker 1: I described is set in motion. Is that because the
Speaker 1: link between capital markets and what might be called the
Speaker 1: real economy is ever closer and closer and closer. No,
Speaker 1: I wouldn't say that, because you know, I've been doing
Speaker 1: this job for a long time to quite a few cycles,
Speaker 1: and I think the timing has remained pretty much the same.
Speaker 1: The clouds can gather quite quickly, and I don't think
Speaker 1: that's new. We didn't have a severe the previous severe
Speaker 1: session before the one that began to do that, and
Speaker 1: seven was in two it was almost as severe, and
Speaker 1: it came on quite surprisingly quickly. So but you're right
Speaker 1: that there is a close connection between financial events and
Speaker 1: the onset of a recession. There's there's no doubt, I think,
Speaker 1: in terms of the most analysts that the procession that
Speaker 1: began at the end of two thousand seven was made
Speaker 1: much worse the financial crisis that occurred in September two eight.
Speaker 1: Speaking of financial events, or maybe fiscal events, we can't
Speaker 1: let you go without asking you a question about a
Speaker 1: major economics story. Just a couple of weeks ago, a
Speaker 1: significant piece of tax legislation was signed into law economists
Speaker 1: in general have said it might give a modest boost
Speaker 1: to the economy in maybe a little bit in twenty nine,
Speaker 1: but most people also agree that it'll significantly widened the
Speaker 1: budget deficit and potentially raise economic risks. What's your take
Speaker 1: on how this law will affect the economy and doesn't
Speaker 1: raise the risk of a recession happening and say a
Speaker 1: couple of years from now. Oh hard to say. I
Speaker 1: think in my capacity is chairman of this committee, that's
Speaker 1: not the type of thing we consider. We wait for
Speaker 1: things to happen. We're definitely not in the forecasting business. Obviously,
Speaker 1: I have another life as somebody who thinks about topics
Speaker 1: like that. But as far as my representing this committee,
Speaker 1: the thing for me to say is we're not in
Speaker 1: the forecasting business or very much in the what happened
Speaker 1: over the past previous year, not what's going to happen
Speaker 1: next year. That's that's my job on the top of
Speaker 1: the committee. Bob, thanks very much for being with us
Speaker 1: today on Benchmark my pleasure. Benchmark will be back next week.
Speaker 1: Until then, you can find us on the Bloomberg terminal,
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Speaker 1: for listening, See you next time.