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Recession Panel Could Make Its Official U.S. Call Within Months

Steve Matthews
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Recession Panel Could Make Its Official U.S. Call Within Months

(Bloomberg) -- The group that officially will determine whether the U.S. economic slump sparked by the coronavirus qualifies as a recession is watching data and could announce prior to the November presidential election that the country’s longest-ever expansion is over.

A short but substantial drop in activity could be classified as a recession, said Stanford University professor Robert Hall, head of the National Bureau of Economic Research’s business cycle dating committee. The 1980 recession was “short but sharp” lasting just six months and required such a decision. “We decided it did,” Hall said.

President Donald Trump said Monday that the economy “may be” headed into a recession, taking a more downbeat tone on the situation than before. “This is a bad one,” he said of the virus, adding any downturn would be followed by “a tremendous surge” in activity.

Federal Reserve Chairman Jerome Powell was more cautious, telling reporters on Sunday after slashing rates to nearly zero that growth would be weak in the second quarter and it was hard to say when it would recover.

The question will likely have political significance for the president, who has repeatedly touted a strong U.S. economy, with a half-century low in unemployment and rising stock prices, as a prime rationale for his re-election.

QuickTake: What to Know About Recessions, as Virus Threatens One

While Hall as chairman declined to comment on his view of the outlook, another committee member, Harvard University economist James Stock, said he agreed with private forecasters that the U.S. is starting to have “a very sharp reduction in demand.”

The decline might be similar to 1990, when Iraq’s invasion of Kuwait that August resulted in a temporary oil-price spike and a great deal of uncertainty. That led to hiring freezes in the U.S. and reduced consumption, tipping an already weak economy into recession, Stock said.

“Here the consumption cutback is because of the direct effects of telecommuting -- travel, hotels, malls, ground transport, et cetera -- but I’d think that uncertainty plays into things now as then,” he said. “From my vantage point it is operating, at least for now, as an old-fashioned demand shock.”

Steep Decline

Goldman Sachs economists on Sunday projected the U.S. economy would grow 0% in the first quarter, plunge by 5% in the second, then rebound starting in the third quarter. That kind of outcome would force the committee to determine whether a temporary decline, if steep enough, would count as an official downturn.

Hall declined to say whether Goldman’s projections would qualify, though its economists say the answer is “probably yes.” “The committee considers only the actual history of the data and does not consider forecasts,” Hall said.

More forecasters joined the calls for recession Monday. UCLA Anderson Forecast economists, revising a forecast released last week, said the U.S. economy has entered a recession that will continue through the end of September. IHS Markit economists said they expect a recession to begin in the second quarter, with the unemployment rate rising to 6% by mid-2021.

In recent decades the NBER has taken anywhere from about six months to 21 months to determine recessions’ start and ending dates, and has prided itself as making calls it views with near certainty long after Wall Street economists and the financial media have labeled a downturn. If the coronavirus disruption in activity were dated in the U.S. as starting in March, the committee could conceivably make a declaration as early as September or October.

The committee, which is nonpartisan, wouldn’t put off any decision as a way of staying out of electoral politics, Hall said.

Members “ignore politics in our determinations,” Hall said. “If we deferred an announcement to ‘stay out of politics’ that would favor one side or the other.”

While some economists define a recession as two consecutive quarters of declining gross domestic product, the NBER doesn’t use that definition. Instead, the committee makes a determination that there has been a significant decline in activity by looking at various measures of broad activity: real GDP as well as a comparable measure of gross domestic income, employment, and income, as well as other indicators such as sales and the Federal Reserve’s index of industrial production.

NBER President James Poterba, an economist at the Massachusetts Institute of Technology and also a committee member, said he’s “been too busy in the last week canceling and re-arranging NBER meetings that were scheduled for the next two months to have much opportunity” to consider the broader economic impact. “My sense is that a great deal hinges on the how the total number of Covid-19 cases evolves in the U.S.,” he said.

This wouldn’t be the first time a health-care crisis contributed to an NBER-dated recession. The deadly Spanish flu was a factor in the 1918-1919 recession and may have played a role in a following recession in 1920-21, said Karen Clay, a Carnegie Mellon University economist who published an NBER paper in 2018 looking at pandemics.

(Updates with NBER definition of recession)

--With assistance from Michael Sasso.

To contact the reporter on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Scott Lanman, Alister Bull

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