Is the U.S. Recession Over Yet

Abstract

As of March 2002 U.S. economy is already showing signs of breaking out of 2001 However, NBER announced in February 2002 that the Committee will wait until a substantial period of expansion has elapsed before declaring that a turning point in economy is a true trough, marking end of a recession. Thus, NBER dating procedure can not be used in real time. This raises some questions: How can we assess whether a recession is over until NBER announces its decision? Are there models that can date business cycles in real time? Univariate Markov switching models and Dynamic Factor models with regime switching yield estimated probabilities or recessions and expansions that are very similar to NBER dating. Thus, these formal analytic models can be useful to monitor turning points and evaluate forecasts in real time, overcoming delays inherent to NBER dating procedure. In particular, these models can be used to assess when 2001 U.S. recession actually started and whether recession is over yet. Regarding beginning of recession, models indicate that NBER Committee was right on target -- that is, March 2001 was beginning of With respect to possible end of recession, models indicate that recession has already ended, using information available up to March 2002. A conservative estimate places trough of recession in February 2002 whereas an optimistic forecast places end of recession in January 2002.