Never heard of that committee? Most people haven’t. Despite its name, it’s not a dating app. It’s something that’s considerably less fun — but much more important. And its work could loom large over the presidential election.
The committee, you see, is part of the National Bureau of Economic Research, a nongovernment, nonpartisan organization of academic economists. The committee’s nine members, all of whom are academics, issue the definitive rulings on whether a recession has begun or ended. And when that happened.
Given the huge hit that his reelection prospects would take if we’re in a recession before Election Day next year, it wouldn’t surprise me for Trump to begin lobbying the committee. Publicly, of course.
Trump could well tweet out a command that the committee declare that the U.S. economy is wonderful and great, that trade wars are helping growth and that there’s nothing resembling a recession in sight.
Sure, the idea of the president of the United States trying to force a group of academic economists to say what he wants to hear sounds ridiculous. But then again, who would have ever thought that we’d see a president repeatedly ridiculing the Federal Reserve and demanding that it sharply cut short-term interest rates?
Trump’s opponents, who are hoping that the interest rate inversion means that a recession is at hand, may well lobby the committee, too. But I think they’d be more discreet than Trump. Well, who wouldn’t be?
So before the committee becomes a topic of public debate driven by people with short attention spans, let’s talk about what a recession actually is.
And let’s also talk about why I don’t expect to see a committee recession ruling before Election Day next year. Not because of political considerations but because of how the committee works.
Many people think that a recession consists of two straight quarters of decline in what economists call “real” gross domestic product. “Real” means adjusted for inflation. So if the economy were to grow 2 percent at a time of 3 percent inflation, we’d have a decline in real GDP.
The bureau’s definition of a recession is far more insightful and worth reading in full.
It goes like this: “The NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, 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.”
Bob Hall, a Stanford economics professor who has chaired the committee since it was established in 1978, told me that one reason for the complex definition is that it’s possible to have very small declines in real GDP for two quarters without the economy as a whole going into decline.
This multi-factor definition means that it takes the committee a good while after the economy has peaked or bottomed to issue its rulings. For example, it took the committee until Sept. 20, 2010, to declare that the Great Recession, which began in December 2007, ended in June 2009.
At the time, the ruling was controversial in certain quarters. Barack Obama talked about how even though the committee had ruled that the U.S. economy had recovered, millions of people were still a lot worse off than they had been.
Hall agreed that many people were in fact worse off and that the recovery was weak but, nevertheless, an economic recovery had been underway for more than a year.
On average, it has taken the committee slightly more than a year after a turn in the economy to issue a ruling.
“We’re patient,” Hall says. “We’re not out to make headlines. We’re content to have people say ‘finally’ ” when a ruling emerges.
It’s going to be interesting to watch the current situation play out.
Even if the economy is close to entering a recession or already in one — both of which are far from clear — it would take months of economic slowdown to meet the committee’s recession criteria. And then it would probably take about a year — or more — for the committee to feel comfortable saying that the economy’s in recession.
So even though I think that the committee will be in the news one of these days, I don’t expect to see it make news by issuing a “we’re in a recession” ruling before Election Day 2020.
I don’t know whether we’ll be in a recession when that day rolls around next year. But what I do know is that now, before the shrieking starts, is the best time for us to hook up with how the recession arbiters at the Business Cycle Dating Committee look at the world.
Alice Crites contributed to this report.