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December 1, 2008

NBER's Recession Call and the Critics

People are falling out of trees to criticize NBER's new U.S. recession call, given that it is coming 12 months after said recession started in December 2007. The following chart (adapted partly from a Schwab figure) more or less supports the cynicism, with economists, as the joke goes, forecasting seven of the last five recessions -- and doing it late, as well..

Two things, however, in defense of NBER. First, NBER's job is a historical one, not strictly an economic one: It is, by design, supposed to wait until there is no more certainty about recession dates. Its job isn't to provide traders with short-selling ideas.

Second, and this is often missed, there just isn't that much data to go from here. We have precisely six recession dated by the NBER cycle committee, including today's, and one of which it never dated at all. Saying that NBER is always or late, or marks a bottom, or whatever, is extrapolating from virtually no data. People saying so should be ignored.

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