Business

The NBER's Business Cycle Dating Committee has determined that a peak in business activity occurred in the U.S. economy in March 2001. A peak marks the end of an expansion and the beginning of a recession. The determination of a peak date in March is thus a determination that the expansion that began in March 1991 ended in March 2001 and a recession began. The expansion lasted exactly 10 years, the longest in the NBER's chronologyA 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 wholesale-retail trade.

A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.Because a recession influences the economy broadly and is not confined to one sector, the committee emphasizes economy-wide measures of economic activity. The traditional role of the committee is to maintain a monthly chronology, so the committee refers almost exclusively to monthly indicators.

The committee gives relatively little weight to real GDP because it is only measured quarterly and it is subject to continuing, large revisionsThe broadest monthly indicator is employment in the entire economy. The committee generally also studies another monthly indicator of economy-wide activity, personal income less transfer payments, in real terms, adjusted for price changes. In addition, the committee refers to two indicators with coverage of manufacturing and goods:

(1) the volume of sales of the manufacturing and trade sectors stated in real terms, adjusted for price changes, and

(2) industrial production. The Bureau of Economic Analysis of the Commerce Department compiles the first and the Federal Reserve Board the second. Because manufacturing is a relatively small part of the economy, the movements of these indicators often differ from those reflecting other sectors.Although the four indicators described above are the most important measures considered by the NBER in developing its business cycle chronology, there is no fixed rule about which other measures contribute information to the process.A recession involves a substantial decline in output and employment. In the past 6 recessions, industrial production fell by an average of 4.6 percent and employment by 1.1 percent.

The Bureau waits until the data show whether or not a decline is large enough to qualify as a recession before declaring that a turning point in the economy is a true peak marking the onset of a recession.Figure 1 shows the recent movements of employment superimposed on the average movement over the past six recessions. Employment reached a peak in March 2001 and declined subsequently. The figure for October is the first to reflect the effects of the attacks of September 11.

Through October, the decline in employment has been similar to the average over the first 7 months of recessions. The cumulative decline is now about 0.7 percent, about two-thirds of the total decline in the average recession.Figure 2 shows industrial production. A peak occurred in September 2000 and the index declined over the next 12 months by close to 6 percent, surpassing the average decline in the earlier recessions of 4.6 percent. Figure 3 shows real manufacturing and trade sales. This measure reached a peak almost a year ago. Figure 4 shows the movements of real personal income less transfers. This measure has continued to rise in recent months and has not yet reached a peak