Hall Stays Clear of Recession Call in Business Cycle Session

By Mark Lieberman
Senior Economist
Fox Business Network
NABE Member

Annual meeting attendees who hoped to hear Robert Hall offer a definitive recession call at his “Dating Business Cycles” session were probably disappointed, but those trying to understand how the National Bureau of Economic Research makes its call certainly were not.

Hall is a member of the National Academy of Sciences, a fellow of the American Academy of Arts and Sciences, and a fellow of the Econometric Society. He presented the Ely Lecture to the American Economic Association in 2001 and served as the Association’s Vice President in 2005.

He also happens to chair the NBER’s Committee on Business Cycle Dating and wearing that hat offered some detailed insight going beyond the material readily available at NBER’s website.

In his presentation, Hall acknowledged the genesis of the rule-of-thumb recession definition of two consecutive quarters of negative gross domestic product that he said was first observed by Arthur Okun, a member of the Council of Economic Advisers under President John F. Kennedy and CEA chair under President Lyndon Johnson.

The definition, Hall acknowledged, has some merit as he presented several charts describing the cycle committee’s analytic techniques. The analysis, he said, involves indexing economic activity—GDP and non-farm payroll employment—and measuring activity before and after. Generally, he observed, the peak of payroll employment is followed by two-to-three months of flat employment and then a decline. The exception, he said, was 1973 when payroll employment continued to rise after the cycle peak.

As to his own recession definition, Hall offered that “when Business Week announces the economy is in free fall, that’s a recession.”

Cycle peaks, for the presentation and NBER’s analysis, were calculated as a ratio of GDP to the peak, normalized to be 1 at the peak. For the average of the past six recessions, his presentation showed, the ratio rose gradually from six months before the peak then fell noticeably for two quarters after the peak, before increasing.

Hall noted that the 2001 recession, considered mild in terms of GDP fluctuation—indeed it did not contain two consecutive GDP quarters—was “one of the most severe in terms of employment.”  In 2001, he said, employment peaked in March, reinforcing the dating of the recession that year.

While he said NBER looks for a “substantial decline in activity” he added his committee faces the same challenges today as it did in 2001, although “looking at employment, there was an unambiguous peak in December 2007.”

Hall offered yet another guidepost for determining a recession. “A modern recession,” he said, “is one in which productivity rises, rather than falls.”

He was asked if the committee would discount the sharp jump in GDP in the second quarter of this year because of the tax rebate stimulus package that boosted incomes and consumption, but he dismissed labeling it as a special circumstance.

“If the policy making process creates a change in the economy,” he said, “that’s part of the economy. I’m not sure it’s a distortion, it’s just part of the process.”

Hall’s presentation at the annual meeting is available on the session page.