Nber’s Business Cycle Dating Essay

The NBER’s Business Cycle Dating Committee uses many methods and data analysis to determine the timing of business cycle peaks and troughs. They do not simply use, as the media frequently states, 2 consecutive quarters of decline in RGDP. In fact, the committee does not even have a set of rules or definitions they must follow to determine the timing of the business cycles peaks and troughs. The committee “examines and compares the behavior of various measures of broad activity: real GDP measured on the product and income sides, economy-wide employment, and real income. The committee also has other indicators they look at such as the Federal Reserve’s index of industrial production (IP). When looking at other indicators, it opens the potential to double count some of the sectors that are included in real GDP. This is due to the complexity of the economy, i. e. , when “economy-wide indicators are in conflict or do not have well-defined peaks or troughs”, this helps them to determine the peak and trough dates. To further explain the NBER’s Business Cycle Dating methodologies I will use their memos from the recent U. S. 007 – 2009 Great Recession to highlight their analysis and determinations.

To identify the start of the great recession they needed to identify a peak. The NBER “emphasizes economy-wide measures of economic activity. The committee believes that domestic production and employment are the primary conceptual measures of economic activity. ” and “believes that the two most reliable comprehensive estimates of aggregate domestic production are normally the quarterly estimate of real Gross Domestic Product and the quarterly estimate of real Gross Domestic Income, both produced by the Bureau of Economic Analysis. They looked at both of these figures along with “real personal income less transfer payments, real manufacturing and wholesale-retail trade sales, industrial production, and employment estimates based on the household survey. ” From these data sets, they identified December 2007 as a peak- the peak to the great recession, as it would turn out to be. Next, they needed to identify the trough. A “Trough marks the end of the declining phase and the start of the rising phase of the business cycle.

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Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion. ” A trough was identified by the NBER committee on 9/20/2010, for June 2009. This was the end of the great recession and the beginning of expansion. Just as they analyze for the peak, to find the trough they look at the same indicators, but for the opposite effect. They look for the lowest point before the turning point, so they need to be very careful they do not pin point a date too soon.

This is why they waited more than a year after the actual trough date to declare the end of the great recession. During their analysis the data showed there were two months that had several indicators signaling the trough – June and October 2009. They chose June because “quarterly real GDP and GDI rose strongly in the fourth quarter. ” And, “that real GDI is a more comprehensive measure of income than real personal income less transfers, as it includes additional sources of income such as undistributed corporate profits. ” 2.

A) After analyzing data tables A and B for the last three months I feel there are several important observations to take away from my analysis. Beginning with Table A (Household): The overall unemployment rate and number of unemployed persons remained relatively unchanged. Among the major worker groups, all showed little change except for the blacks; they had a decrease by 1% in unemployment. The number of long-term unemployed was also of little change and they make up 41. 3% of the unemployed. This is a staggering number that is historically and persistently high.

The number of persons employed part time for economic reasons was effectively the same as were number of discourage persons and persons marginally attached to the labor force. The Establishment table, table B, shows some key points that should also be highlighted. They are: Nonfarm payroll employment increased by 115,000 in April, with similar gains since December. The professional and business services also showed an increase by 62,000 in April. This industry hit a low in September of 2009, and has since increased by 1. 5 million.

Retail trade has also showed growth by 29,000 and Health care added 19,000. In the Food services and drinking places there was an increase by +20,000. This continues to follow the upward trend totaling 576,000. Manufacturing also continued up by +16,000 totaling 489,000 jobs since the low in January 2010. However, transportation and warehousing lost 17,000 jobs. Mining and logging, construction, wholesale trade, information, financial activities and government changed very little. The average work week for all employees on private non-farm payroll was 34. hours, which was unchanged from the previous month. The average work week for production and nonsupervisory employees on private non-farm payroll was also unchanged at 33. 8 hours. Finally, the average hourly earnings for all employees on private non-farm payrolls were up 1% to $23. 38 and the average hourly earnings of the private-sector production and nonsupervisory employees was up 3 cents to $19. 72. Overall, I feel we are in a very gloomy employment situation. I hope we can see faster job growth in the future. B)Yes, there is a difference between the unemployment rate between teenagers and adults.

Teenagers 16 to 19 years have approximately 3 times the unemployment rate as adults. April 2012 non-seasonally adjusted* unemployment rates are as follows for: Blacks = 12. 5 Hispanic or Latino = 9. 8 White = 7. 1 Asians = 5. 2 The category with the highest rate of unemployment on tables A-2 and A-3 is Black or African American both sexes, 16 to 19 years = 34. 1 * I used the non-seasonally adjusted unemployment rate because Asians and Hispanics or Latinos do not have a seasonally adjusted unemployment rate.

C)In table A-4 the relationship between educational attainment and unemployment rate is that the higher level of education obtained the lower the rate of unemployment is. D) In table A-8, April 2012, there are 2,107,000 non-seasonally adjusted farmers shown. Table A shows that the total American employment is 141,865,000. Therefore, Farmers are 1. 49% of the total American employment picture. (2,107,000/141,865,000) Most people are working part time because of non-economic reasons. ** The following supporting data is directly from Table A-8 Persons at Work Part Time – All Industries – Non-seasonally adjusted, April 2012 (in thousands).

Economic reasons = 7,694 Slack work or business conditions = 4,997 Could only find part time work = 2,456 Part time for non-economic reasons = 19,443 ** Refers to persons who usually work part time for noneconomic reasons such as childcare problems, family or personal obligations, school or training, retirement or Social Security limits on earnings, and other reasons. This excludes persons who usually work full time but worked only 1 to 34 hours during the reference week for reasons such as vacations, holidays, illness, and bad weather

E)From table A-15, in my opinion, U-6 is the best indicator of the labor conditions as measured by the household survey. I feel this way because it gives the most “complete” picture as to what is going on with the entire labor sector. This is due to how it is calculated. U-6 is defined as “Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force. All the others indicators, U-1 through U-5, leave out sections of the labor force. Therefore, they do not and cannot show the “complete” picture that U-6 shows. U-1 through U-5 have many uses for “drilling down” into the labor conditions but, U-6 has them all beat on a Macro level. Reference: Bureau of Labor Statistics U. S. Department of Labor, USDL-12-0816 http:www/bls. gov/news. release/pdf/empsit. pdf