This post is a guest contribution by Asha Bangalore* of The Northern Trust Company.

The National Bureau of Economic Research (NBER), the arbiter of business cycles, officially announced the trough of March 1991 on December 22, 1992 and the trough of November 2001 on July 17, 2003. Based on this history, there is a lapse of roughly 20 months before the Business Cycle Dating Committee has announced the date of a business cycle trough. Real gross domestic product had risen in the second quarter of 1991 (see chart 1) and the fourth quarter of 2001 (see chart 2) and stayed positive until the next recession.


Real gross domestic product is projected to show an increase in the third quarter of 2009. Real gross domestic product is a quarterly estimate. The NBER uses monthly economic information of four data series to identify the turning point of a business cycle – payroll employment, real personal income less transfer payments, industrial production, and real sales.


The July 17, 2003 statement of the NBER (Business Cycle Dating Committee, National Bureau of Economic Research) noted as follows:

“Identifying the date of the trough involved weighing the evidence provided by the behavior of various indicators of economic activity. The estimates of real GDP issued by the Bureau of Economic Analysis of the U.S. Department of Commerce are only available quarterly. Further, macroeconomic indicators are subject to substantial revisions and measurement error. For these reasons, the committee refers to a variety of monthly indicators to choose the exact months of peaks and troughs. It places particular emphasis on real personal income excluding transfers and on employment, since both measures reflect activity across the entire economy. The committee places less emphasis on the industrial production and real sales series, which mainly cover the manufacturing and goods-producing sectors of the economy. The committee also looks at estimates of monthly real GDP prepared by Macroeconomic Advisers. There is no fixed rule about what weights are assigned to the various indicators, or about what other measures contribute information to the process.”

Charts 4-6 illustrate the behavior of real personal income less transfer payments in the 1991, 2001, and current cycles. The main conclusion is that the trough of real personal income less transfer payments nearly coincided with the dating of the trough of a business cycle in 1991 and 2001



Chart 7, 8, and 9 depict the behavior of payroll employment in the 1991, 2001, and current cycle. The main conclusion is that payroll employment continued to decline for several months after the onset of an economic recovery. Both the 1991 and 2001 recoveries are coined as “jobless recoveries” and the 2009 upswing could also be one such event.



The trough of industrial production is roughly coincident with the troughs of business cycles (see chart 10). The industrial production index rose 0.5% in July 2009, following eight consecutive monthly declines. Although economic data will indicate a recovery in economic activity in the third quarter of 2009, questions about its durability will remain on the radar screen for several months.


Source: Asha Bangalore, Northern Trust Daily, August 31, 2009.

* Asha Bangalore is vice president and economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

Did you enjoy this post? If so, click here to subscribe to updates to Investment Postcards from Cape Town by e-mail.