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Monday, 25 June, 2001, 16:42 GMT 17:42 UK
US may already be in recession
US month-by-month unemployment rate
The NBER eyes data, such as the unemployment rate, to determine if the US has entered a recession

By BBC News Online's North America Business Reporter, David Schepp

US central bank governors are set to begin a two-day meeting on Tuesday to determine how the Federal Reserve should revise fiscal policy to stave off a recession.

But the group charged with determining whether a recession has begun or not says data shows the possibility that a "recession began recently" in the world's largest economy.

US Treasury Secretary Paul O'Neill
Despite pronouncements to the contrary, Treasury Secretary O'Neill sees no recession

The National Bureau of Economic Research (NBER) referred to a number of factors that point to recession, including rising unemployment, and slumping industrial production and manufacturing.

In a memo posted at its web site, the NBER says that while a recession may have begun, "the economy has not declined nearly enough to merit a meeting" of its officials to determine when the downturn may have started.

The standard definition of recession is usually when the economy has entered two consecutive quarters of negative growth.

The 81-year-old private research organisation, however, uses a simpler definition: "A recession is a significant decline in activity spread across the economy, lasting more than a few months, visible in industrial production, employment, real income and trade."

Wall Street fully expects that given weak economic data in recent weeks, the Fed will opt to cut rates by another half-point, driving the Fed's key interest rate down to 3.5%.

Official Arbiter

As the official arbiter of US business cycles, the NBER pores through all manner of economic data to precisely pinpoint when the economy slipped into recession.

The NBER's Business Cycle Dating Committee does not determine the start or end of a recession until it has at least six months of data. Often, even more time is required to make the determination.

For example, the NBER officially determined the economy last entered a recession in July 1990. But it weighed-in with its decision in April 1991. Similarly, it pinpointed the '90-'91 recession's March 1991 end in December 1992.

While any determination by the NBER may be months away, another business-cycle-research firm, the Economic Cycle Research Institute (ECRI), says by NBER's definition, a recession has already begun.

"The indicators that define an official recession in the country have never been this bad without a recession," says ECRI research director Anirvan Banerji. "So either we are in a recession right now, or we are in the worst non-recession ever recorded."

Sea change

The memo marks a change in NBER's last pronunciation of the health of the US economy in April when it said that nothing in its data would prompt an inquiry into whether the country had entered a recession.

US Treasury Secretary Paul O'Neill addressed the possibility of a recession with remarks on the Sunday morning news programme, "This Week".

Asked whether the US could still avoid a recession, the former Alcoa chief executive said, "Well, so far, I think that's where we are, yes."

Mr O'Neill said the effects of five half-point interest rate cuts by the Federal Reserve need time to work their way through the economy, traditionally taking around six months to take effect.

"We're approaching that now," he said. "So I think things are unfolding in a way one would expect from history."

Terror's impact

Signs of a slowdown

Rate cuts


Key players

See also:

14 Mar 01 | Business
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