Friday, March 28, 2008

When Did The Recession Start?

Hugh Cleland made an interesting observation about recession and the stock market. He noted that the NBER start date of the recession in 1990 coincided with the top in the S&P 500. Using this relationship, he conjectured that the market top in October 2007 may be the start date of the recession.

However, data from the past 7 US recessions reveal that this relationship was not repeated in any of the other 6 recessions and therefore, is a mere coincidence. So when did the recession actually start?

Below are ECRI’s official recession calls in the past:
Feb. 6, 1990 by Geoffrey Moore. Lead time = 6 months.
Mar. 26, 2001 by Anirvan Banerji. Lead time = 0 months.
Mar. 21, 2008 by Lakshman Achuthan. Lead time = ?

My own speculation is that ECRI’s recession call is late this time around. There was solid evidence for a recession call in January 2008. Unfortunately, ECRI was hoping that rapid rate cuts by the Fed could help avert a recession. They did not realize that this particular recession, driven by a deflating credit bubble, would increase the time needed for monetary stimulus to work itself into the economy.

Hence, until NBER announces the official recession dates for this cycle, I will assume that it began in January 2008.
Edit: NBER's Business Cycle Dating Committee announced on December 11, 2008 that the recession officially began in December 2007. My speculations have been proven correct and ECRI was late by 3 months in calling the recession.


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Anonymous said...

I'm not sure of your recession call dates, but they do seem roughly correct.

I do know you are mistaken about ECRI's reasons for not saying recession was a done deal in January. They were harping about a unique opportunity for fiscal stimulus to work because of the inventory cycle (provided it was prompt, which it wasn't). Here is their expanation:

Also, I've heard that ECRI states in their high-end reports that the recession could have started in Q4 2007 or January 2008, and that they use the latter date for now to be conservative until revisions to the data are all in.

p.s. It seems that they may have been aware of the deflating credit bubble. See the front page chart on their website:

Anonymous said...

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mutual fund said...

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Financial Planning said...

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Nichole said...

I believe that recession is within us. If you don't have enough money to supply your need then that's where recession starts in your like. For people who have money, whether it's recession or not they will survive. They can even afford to get a liposuction Michigan even if it's recession.

Unknown said...

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FTIN said...

Well, now that its near the end of 2012, I might ask myself "Has the recession ended?"