It's now official, says the National Bureau of Economic Research. The seven "Wise Men" announced today that the economy entered a recession back in December 2007. The "Wise Men" are seven economists on the NBER Business Cycle Dating Committee. They included a woman, Christina Romer, but she resigned last Tuesday after President-elect Obama announced her appointment as head of his Council of Economic Advisers.
Data from the Bureau of Economic Analysis last Tuesday showed that the United States has had two quarters of negative GDP growth during the last year -- the fourth quarter of 2007 and the third quarter of 2008. The fourth quarter is again expected to be negative, so the second half of 2008 would clearly be in recession using the old rule of thumb of two successive negative-GDP quarters.
The NBER Committee takes pains to say that it doesn't rely on the two-quarter-negative-GDP rule and uses a monthly number rather than a quarterly number. The "Wise Men" define a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. It begins when the economy reaches a peak of activity and ends when the economy reaches its trough."
George W. Bush's administration is therefore bookended by two recessions, the first occurring in 2001, after the tech bubble burst. The 2001-2007 span between recessions was long, and the large government spending deficits that the Bush Administration enjoyed may have contributed to lengthening it. Many have worried that the Bush deficits were too large in the past few years. Now that a global financial crisis has taken hold, the worry is that the first Obama fiscal deficit won't be large enough to cure the current global crisis of confidence.