Business Cycle Dating Committee Announcement October 21, 2003

The National Bureau's Business Cycle Dating Committee maintains a chronology of the US business cycle. The chronology identifies the dates of peaks and troughs that frame economic recession or expansion. The period from a peak to a trough is a recession and the period from a trough to a peak is an expansion. According to the chronology, the most recent peak occurred in March 2001, ending a record-long expansion that began in 1991. The most recent trough occurred in November 2001, inaugurating an expansion.

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. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.

On November 26, 2001, the committee determined that the peak of economic activity had occurred in March of that year. For a discussion of the committee's reasoning and the underlying evidence, see November 2001. The March 2001 peak marked the end of the expansion that began in March 1991, an expansion that lasted exactly 10 years and was the longest in the NBER's chronology. On July 16, 2003, the committee determined that a trough in economic activity occurred in November 2001. The committee's announcement of the trough is at July 2003. The trough marks the end of the recession that began in March 2001. The 2001 recession thus lasted eight months, which is somewhat less than the average duration of recessions since World War II. The postwar average, excluding the 2001 recession, is eleven months.

In choosing the dates of business-cycle turning points, the committee follows standard procedures to assure continuity in the chronology. Because a recession influences the economy broadly and is not confined to one sector, the committee emphasizes economy-wide measures of economic activity. The committee views real GDP as the single best measure of aggregate economic activity. In determining whether a recession has occurred and in identifying the approximate dates of the peak and the trough, the committee therefore places considerable weight on the estimates of real GDP issued by the Bureau of Economic Analysis of the US Department of Commerce. The traditional role of the committee is to maintain a monthly chronology, however, and the BEA's real GDP estimates are only available quarterly. For this reason, the committee refers to a variety of monthly indicators to determine the months of peaks and troughs.

The committee places particular emphasis on two monthly measures of activity across the entire economy: (1) personal income less transfer payments, in real terms and (2) employment. In addition, the committee refers to two indicators with coverage primarily of manufacturing and goods: (3) industrial production and (4) the volume of sales of the manufacturing and wholesale-retail sectors adjusted for price changes. The committee also looks at monthly estimates of real GDP such as those prepared by Macroeconomic Advisers (see http://www.macroadvisers.com). Although these indicators are the most important measures considered by the NBER in developing its business cycle chronology, there is no fixed rule about which other measures contribute information to the process.

Figure 1 shows the recent movements of quarterly real GDP superimposed on the average movement around troughs over the previous six recessions. GDP reached a peak in the fourth quarter of 2000. This was followed by contraction during the first three-quarters of 2001 and growth since then. According to revised data released in September 2003, real GDP increased at an annual rate of 3.3 percent in the second quarter of 2003, and 1.4 percent in the first quarter.

Figure 2 shows the movements in real personal income less transfers. Real personal income fell in early 2001. It reached its low point in October 2001 and then generally rose throughout 2003, reached its highest level in July 2003. It fell slightly in August, the most recent reported month. A comparison of Figures 1 and 2 shows that personal income has grown less rapidly than real GDP. The reasons for this are discussed in the frequently asked question on this topic below.

Figure 3 shows the behavior of payroll employment. The movement of this series is quite different from the output-based measures. Employment reached a peak in February 2001 and declined through July 2002. It rose slightly through November, but with the exception of January 2003, declined throughout 2003 until it rose in September, the most recent reported month. It is now 484,000 below the start of the year, and 2.7 million below the February 2001 peak. The fact that employment continued to decline while output-based measures rose reflects the fact that productivity has risen substantially since late 2001.

The other monthly series were generally declining in 2001 but have for the most part been rising since then. Industrial production fell until December 2001 and then rose rapidly until July 2002. It has fallen slightly since then. Real manufacturing wholesale-retail sales reached its low in September 2001. This series has generally risen since then. May, June, and July 2003, the three most recent reported months, all show substantial increases. Real GDP, according to monthly estimates provided by Macroeconomic Advisers, also reached a low in September 2001 and has generally been growing since then. It reached its highest point ever in July 2003, but was followed by a slight drop in August, the most recent reported month.

The dark line shows the movement of employment from May 2000 to the present and the shaded line the average over the previous 6 recessions. Source: Bureau of Labor Statistics, U.S. Department of Labor