An egghead explains the recession call
When the National Bureau of Economic Research made its official recession declaration yesterday, a couple of questions came to mind. One, as expressed in one of the comments on our story, is, “DUHHH. Did it really take them that long to figure that one out??” The other, for folks who pay attention to statistics, is, “How can the recession be a year old already? I thought the economy was growing for part of this year.”
Thankfully, Jeff Frankel, a member of the NBER’s Business Cycle Dating Committee, has answers. On his blog, he explains the belated recession call this way:
In past cycles, media reports have sometimes taken the line “Ivy Tower Eggheads Finally Figure Out What Everybody Else Has Known All Along.” The implicit critique is that the committee takes too long after the event - typically almost a year - to make its declaration. One short answer is that our job is to be definitive, authoritative, but not fast. We don’t want to have to revise our dating of the peaks and troughs later …. We leave it to others — pundits, forecasters, consulting companies, financial newsletters, and so on — to try to get there first. We deliberately get there last.
His explanation of the December 2007 start date is a bit more complicated. Government figures show that gross domestic product, the most widely watched measure of the economy, grew in the first and second quarters of this year. But, Frankels said, employment has been shrinking since January, and something called gross national income has been shrinking for even longer. Here’s his explanation of GDP vs. GNI:
The Commerce Department’s Bureau of Economic Analysis computes two measures of output: Gross Domestic Product (GDP) and Gross National Income (GNI). The two should be the same in theory, but differ in practice due to measurement errors. GDP receives far more public attention — in part because its advance estimate comes out first — but in fact has no claim to be a more accurate measure of output than does National Income. The statistics currently available show that GNI peaked in Quarter 3 of 2007, whereas GDP peaked in Quarter 2 of 2008.
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
What seems odd to me is that the “official” announcement of the recession was ostensibly the cause of the stock market dropping by about 10% the same day. In theory, that information should already have been factored into stock prices.