Happy Days Are Not Here Again

The National Bureau of Economic Research, the non-profit organization that has long been responsible for marking the beginning and end of America's recessions, has finally declared that the recession that it said began in March 2001 is over. In fact, the NBER says that it ended almost two years ago, in November 2001.

Non-economists find it hard to understand why it took the NBER so long to decide that the US recession was over. Economics is not supposed to be an exact science, but isn't this tardiness taking things a bit too far?

More importantly, if the recession is over--and has been for so long--why don't Americans feel any better? Why is the economic mood so negative? The answer lies in the definition of a recession. In fact, the questions posed by the NBER may not be the right questions, or at least the most relevant.

A recession is normally defined as two quarters (six months) of decline in GDP. By carefully poring over the data, the NBER determined that output most probably started to grow again in December 2001. Having determined that, it was easy to date the end of the recession. Indeed, today output is 3.3% above its pre-recession peak of late 2000.