Last month, December twenty seventeen, marked the ten year anniversary of an economic event that probably won't be celebrated anywhere. It was the beginning of the deepest recession in the United States since the Great Depression in the nineteen thirties. Now, we know the economy was in pretty bad shape at that time, thanks to the bursting of the housing bubble and the early stages of the global financial crisis. But how do we know that the recession began precisely in
December two thousand seven. Today we're going to talk about the mysterious process that determines when recessions begin and when they end. Welcome to our first Benchmark episode of eighteen. I'm Scott landman and economics editor with Bloomberg News in Washington. Now I'm Daniel Moss, economics writer and editor at Bloomberg View in New York. So, and it's pretty commonly thought that two quarters of declining g DP means that a recession has begun. But that's not the case in the
United States, right, That's right. The US is really an outlier, certainly in terms of major economies. What most people might not know is when it comes to deciding when a slump starts and ends, it's up to a small group of elite professors from around the country who deliberate in secret and then announced their decision to the world. It's a little like waiting for the white smoke from the
Vatican chimney. It's also a lot like those monetary policy meetings we cover all the time at Bloomberg, except this group makes decisions about events that happened months even a year before. In fact, when the recession began in December two thousand seven, it wasn't until a full year later that this committee announced that that was the actual date when the recession officially began. So who are these people? Well,
our guest today can tell us all about that. His name is Robert Hall, and he's a professor of economics at Stanford University in California. He is also the chair of the Business Cycle Dating Committee of the National Bureau of Economic Research, and that's the group that tells the world when a US recession begins and ends. He's joining us by phone here in Washington, where he's en route to an annual meeting of economists in Philadelphia this weekend. Bob,
thanks for joining us on benchmark. So, Bob, can you give us a little history. First of all, how is this committee formed and how did it become the accepted arbiter of when recessions begin and end in the United States? Sure, well, we have to go right back. The National Bureau was created in starting the beginning of a great depression. It took on this job itself just spontaneously to decide when
recessions began and ended. It has done someone informally until when Martin Feldstein took over the National Bureau and appointed me to chair this committee and kind of formalized the whole process. So, for example, we know, write an explanatory memo, and that memo has made public at a certain time, usually about a year after or maybe a year and a half after the actual event. So and we've been doing that consistently pretty much the same basis ever since.
And the name National Bureau of Economic Research sounds federal in Nightsha. Does it have any relationship with the government. No, not a formal relationship. Many people, for example, Feldstine himself was Chamber of the Council of Economic Advisors. But the National Bureau is a the inter university organization as a governing body that universities contribute directors too, and it sponsors research, and it sponsors many many conferences and publications. But it's
basically an academic organization based at universities. Now, how long have you been on the Business Cycle Dating Committee and been its chairman as well? What's wrong with the way many countries do this, Bob? Where I'm from Australia and it's by no means limited to Australia. It's easy to tell when a recession arrives and ends because there's a standard definition of two quarters of contraction in g d
P marks a recession. What's wrong with that definition? You know, a lot of the time, there's nothing wrong with that. If you look at our chronology, it frequently coincides with that. There's some common sense to that idea. But we are sensitive to certain possibilities have arisen. We've had to make judgment calls. For example, if there's a pause in the economy but it doesn't have the drama and depth of what we would call a recession, but it lasts at
two quarters. So if we had it just a couple of quarters where the economy contracted by less than a percentage point, each probably wouldn't call that the recession. We would just just included in whatever else was going on at the time, either a contraction or expansion. So we're alert to that possibility. To be honest, it actually hasn't arisen very dramatically, and you wouldn't go too far off
if you adopted that to quarter. We're not we're not totally against it and saying it's totally false, but we approached this was a little more nuanced, but you probably have. You have more precise data in the United States, probably a richer data set than most countries in the world. We have jobs data in this country that are available on a on a very good level of detail. Does
that help you pinpoint the month where business cycle peaks? Yes. Actually, you mentioned one feature that is important, and that is we do want to identify turning points in a particular month, and the totality of GDP is available only on a quarterly basis, so we'd like to fine tune our work, and we do that using many different monthly series that you mentioned employment, many of the components is output are now measured on a monthly basis, even though the GDP
number itself is quarterly so we look at that too. I guess this also gets to some of the challenges that people have identified when it comes to measuring economic well being purely on the basis of GDP. What else do you look at, Bob Well, First of all, let's be very clear that we don't claim to be measuring the movements of social welfare, and that's an interesting, big topic. But we deal with something we call economic activity, which
in particularly we mean market activity. We're focusing on the amount of output that the economy produces and the number of jobs that it delivers, but we don't try to go beyond that and say that we're doing more than that. So I think we should be very clear that those more technical measures that we're dealing with. Of course, output and jobs are very important. So people are very interested
by the way in the outcome of our deliberations. We're doing something that they're interested in, even though we don't say that it measures the totality of welfare. So let's go back in time ten years ago. It's December two thousand seven. We already know the economy is in fairly bad shape at that time, could be in recession already. But your committee isn't going to announce a decision until about a year later on when the recession actually began.
What is your committee doing in that time to figure it out? What kind of deliberations do you have? Can you walk us through that at all? Well, the committee the modern era has been based primarily on email. The email attachment is the way we deliberate more than anything else. And when it looks like the economies in some trouble, as it did in late two thousand seven, then informally, without necessarily convening something you should call a meeting, we
start trading data almost entirely through email. Then as things come into sharper focus, we generally convene a meeting by a conference call. And at that point we've all seen each other's ideas about what's happening, and then we deliberate, and then finally, usually a year to a year and a half later, we have a meeting which actually decides when the turning point occurred, the peak of activity, which, as you say, we determined occurred in December of two
thousand seven, we write up a memo. The memo is posted on the National Bureau website. It's released to it Financial Press and usually as front page news. Well, are you ever worried about the security of these email communications? It's certainly something we thought about, is in the more general context of making sure that we don't create opportunities
for people to break into the process. We use encrypted email, and we use completely secure telephone calls, and the National Bureau is a very good record of maintaining the records of this process, which are done at National Bureau headquarters. So it's a theoretical possibility. It certainly is not one that's that's created any problem so far, and it's something regarding against the future. And none of you, of course strangers to each other, all to the way you see
the world. You've mentioned the American Economics Association meeting in Philadelphia. You do all see each other around the traps, if not there at the I m F World Bank and other places. Right, sure, not to mention National Bureau conferences, which are a very big part of the deal. Let's talk a little bit more about the membership of the committee. I mean, I see some of the names on your committee, like Martin Felts you've mentioned it. It looks to me
like an economic all star team. I mean, maybe the names aren't widely known to the general public, but many of them are our household names in the world of academia economics departments. How do you go about picking the committee? Is there any way I can be on it? I know you have to have a track record as an academic macro economist, as you have to specialize in the study of the subject at hand, which is what happens to have put unemployment in other other economy wide variables.
So we're looking very much at the economy wide movements, and the subject of macroeconomics basically covers that. So everyone you see here is recognized as a specialist in macroeconomics. Are people beating down your door to get on the committee or is it kind of accepted practice that you come to them? Uh? No, we come to them exactly. Yeah. It would be very unfortunate if somebody called me up, or called up James Pitterbin said I want to be
on the committee. That would be That's just not the way people behave They wait for us to call them. So it is like a papal conclave. You know, I've never thought about that, but yes, in that way, it's not it's not quite as dramatic. You know, we don't meet physically. No one would consider electing the pope on the basis conference call. But that's the way we work,
an email conclave. That that sounds like something for the modern era exactly, you know, going by the NBAS definition, this current expansion, that worrying is starting to get pretty long in the tooth historically. Yes, yes, you're absolutely right. And without going into any of the committee's deliberations, which we know you can't, are you seeing anything right now in our current economic trajectory the United States that gives
you pause? Oh well, it's easy to think of things that give paused, but you know, it's very important to understand that we don't operate on a forward looking basis. So I guess one thing I can say is that there's been no desire in the part of the committee to start the process that I described. It's the committee right now is everyone's watching. But the macroeconomic news has been pretty good lately. And but you know, I would have said the same thing at the beginning of two
thousand seven. So it's been surprising to me in my role to see how quickly things change and they begin to be concerns and then and then this process that I described is set in motion. Is that because the link between capital markets and what might be called the real economy is ever closer and closer and closer. No, I wouldn't say that, because you know, I've been doing this job for a long time to quite a few cycles, and I think the timing has remained pretty much the same.
The clouds can gather quite quickly, and I don't think that's new. We didn't have a severe the previous severe session before the one that began to do that, and seven was in two it was almost as severe, and it came on quite surprisingly quickly. So but you're right that there is a close connection between financial events and
the onset of a recession. There's there's no doubt, I think, in terms of the most analysts that the procession that began at the end of two thousand seven was made much worse the financial crisis that occurred in September two eight. Speaking of financial events, or maybe fiscal events, we can't let you go without asking you a question about a
major economics story. Just a couple of weeks ago, a significant piece of tax legislation was signed into law economists in general have said it might give a modest boost to the economy in maybe a little bit in twenty nine, but most people also agree that it'll significantly widened the budget deficit and potentially raise economic risks. What's your take on how this law will affect the economy and doesn't raise the risk of a recession happening and say a
couple of years from now. Oh hard to say. I think in my capacity is chairman of this committee, that's not the type of thing we consider. We wait for things to happen. We're definitely not in the forecasting business. Obviously, I have another life as somebody who thinks about topics like that. But as far as my representing this committee, the thing for me to say is we're not in the forecasting business or very much in the what happened over the past previous year, not what's going to happen
next year. That's that's my job on the top of the committee. Bob, thanks very much for being with us today on Benchmark my pleasure. Benchmark will be back next week. Until then, you can find us on the Bloomberg terminal, Bloomberg dot com or Bloomberg app as well as wherever you enjoy podcasts, including Apple Podcasts, overcasting Stitcher. While you're there, take a minute to rate and review the show so more listeners can find us and let us know what
you thought of the show. You can follow me on Twitter at at scott Landman Dan you're at Moss Underscore. Ka. Bob isn't on Twitter, but you can follow releases from the n B E r at at n B E r R e L. Benchmark is produced by Topher Foreheads and the head of Bloomberg Podcasts is Francesca Levy. Thanks for listening, See you next time.