America officially in recession

America officially entered a recession in December 2007

America officially entered a recession in December 2007, according to the National Bureau of Economic Research (NBER). Recessions are declared retrospectively by a panel of experts under the American system rather than, as in other countries, simply defined by two consecutive quarters of falling output.

The NBER’s Business Cycle Dating Committee works on the definition that:

“A recession is 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. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.”

This has the advantage of allowing a degree of discretion in determining when an economy is in recession. But, conversely, there is more room for debate about whether it is right or wrong.

Strangely the S&P 500 fell 8.9% yesterday on the news from the NBER. Yet the organisation merely acknowledged what was already widely recognised as reality. This followed a 12% rise in the market last week with five consecutive days of upward movement.

It just reinforces the point that stockmarkets are a poor indicator of economic health.