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The most frequent economic questions asked of the Policy Foundation are, 'When will the recession end?' and 'What evidence is there that this recession continues?'

The National Bureau of Economic Research (NBER) declared Nov. 26 the U.S. economy officially entered recession in March 2001. The NBER states, "The broadest monthly indicator is employment in the entire economy." The Cambridge, Mass.-based group cites four key economic indicators: current employment, industrial production, wholesale-retail trade and real income.

Past Arkansas Policy Foundation research memos have emphasized the importance of industrial production data. The APF memo, 'The Case For Recession,’ (Summer 2001), explained:

"The real economy consists of various sectors, including manufacturing, hi-tech and service. Contrary to popular media it is not synonymous with stock market indices. A key statistic of the real economy is industrial production, a fixed-weight measure of the physical output of the nation's factories, utilities and other heavy industry. Contraction of industrial production for more than a quarter is recessionary. In the postwar era industrial production has never contracted for more than four consecutive months except when the U.S. economy was in recession. Yet it has now been in decline for nearly one year."

In the tradition of Dr. Ludwig von Mises, the 20th Century’s most underrated economist, this analysis relies on the interpretation of data, not econometric modeling.

Earlier this week (Feb. 11), the NBER released a memo that observed, in part, "Figure 2 shows industrial production. A peak occurred in June 2000 and the index declined over the next 17 months by 7.1 percent, far surpassing the average decline in the earlier recessions of 4.6 percent." Industrial production data for January 2002, released today, shows a 0.1 percent decline.

Postwar, in 90 percent of recessions, industrial production stopped contracting prior to or in the month later declared by the NBER as the end of recession. The lone exception was the 1981-82 recession, which ended in November 1982, one month before industrial production stopped contracting in December. Expansion of industrial production, when it occurs will provide evidence the recession has ended or is ending.

--Greg Kaza

RECESSION

February-October 1945
November 1948-October 1949
July 1953-May 1954
August 1957-April 1958
April 1960-February 1961
December 1969-November 1970
November 1973-March 1975
January-July 1980
July 1981-November 1982
July 1990-March 1991
March 2001-

RECESSION'S FINAL MONTH
LAST MONTH OF INDUSTRIAL PRODUCTION CONTRACTION

October 1945
October 1945

October 1949
October 1949

May 1954
April 1954

April 1958
April 1958

February 1961
February 1961

November 1970
November 1970

March 1975
March 1975

July 1980
July 1980

November 1982
December 1982

March 1991
March 1991

(Sources: National Bureau of Economic Research; Federal Reserve Board, Washington, D.C.)