As a person who follows the stock market and the economy, I find it surprising that the National Bureau of Economic Research (NBER), as opposed to Dow's Theory or the stock market, is looked to in determining when we're in a recession or a recovery. The evidence is resoundingly against having NBER guide us to clarity in the economy.
My first example of why the NBER isn't a great guide for the state of the economy starts with the November 2001 press release telling us that the peak in the economy took place in March 2001. This would be great if we were informed in May or June of 2001. I mean, none other than Ben Bernanke was on the team that issued the press release. Contrast that with Dow's Theory which gave a bear market indication on February 22, 2000. The difference between the NBER peak in the economy and the Dow Theory indication was 9 months. The stock market, as represented by the Dow Jones Industrial Average, peaked in January 2000.
On July 17, 2003, the NBER announced that the bottom in the economy occurred on November 2001. This was a full one year and eight months after the fact. The stock market bottomed September 2002 while Dow's Theory gave the indication that the economy had bottomed on June 3, 2003. It seems that what is useful is the most accurate and timely not the most spurious.
Finally, on December 1, 2008, NBER announced that the peak in the economy had occurred on December 2007. During the week of June 16, 2008, Dow's Theory indicated that the bull market was over. This was six months before the actual announcement by the NBER. The stock market peaked in October of 2007.
How useful are the NBER announcements of when a peak or trough occurred in the economy? Judging by the extreme lag in time when the public is notified, there seems to be little use of a committee that tells us almost two years after the fact that we're in a recession. As we go back in time we can easily see that the averages (Dow Industrials and Transports) discount everything while the NBER selectively chooses when the data seems to fit. Touc.
My first example of why the NBER isn't a great guide for the state of the economy starts with the November 2001 press release telling us that the peak in the economy took place in March 2001. This would be great if we were informed in May or June of 2001. I mean, none other than Ben Bernanke was on the team that issued the press release. Contrast that with Dow's Theory which gave a bear market indication on February 22, 2000. The difference between the NBER peak in the economy and the Dow Theory indication was 9 months. The stock market, as represented by the Dow Jones Industrial Average, peaked in January 2000.
On July 17, 2003, the NBER announced that the bottom in the economy occurred on November 2001. This was a full one year and eight months after the fact. The stock market bottomed September 2002 while Dow's Theory gave the indication that the economy had bottomed on June 3, 2003. It seems that what is useful is the most accurate and timely not the most spurious.
Finally, on December 1, 2008, NBER announced that the peak in the economy had occurred on December 2007. During the week of June 16, 2008, Dow's Theory indicated that the bull market was over. This was six months before the actual announcement by the NBER. The stock market peaked in October of 2007.
How useful are the NBER announcements of when a peak or trough occurred in the economy? Judging by the extreme lag in time when the public is notified, there seems to be little use of a committee that tells us almost two years after the fact that we're in a recession. As we go back in time we can easily see that the averages (Dow Industrials and Transports) discount everything while the NBER selectively chooses when the data seems to fit. Touc.
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