Greater Opportunity Through Innovative Change

Policy Foundation Sees Recession End In January 2002

Numerous Arkansas Policy Foundation research memos have noted the importance of industrial production data maintained by the Federal Reserve System.

Postwar, in 90 percent of recessions, industrial production stopped contracting prior to or in the month later declared by the National Bureau of Economic Research (NBER) as the end of the recession. The lone exception was the 1981-82 recession, which ended in November 1982, one month before industrial production stopped contracting in December.

The Cambridge, Mass.-based NBER suggests four key economic indicators in its research memos: current employment, industrial production, wholesale-retail trade and real income.

Industrial production measures expansion or contraction in the real economy's key sectors. The Policy Foundation, in its 2002 economic forecast, released in February, noted:

"Expansion of industrial production, when it occurs, will provide evidence the recession has ended or is ending."

The February 2002 industrial production data, released March 15 by the Federal Reserve, shows expansion. The January 2002 data, originally negative, has been revised to show expansion.

Contraction of industrial production for four consecutive months was a key factor leading the Policy Foundation to declare in February 2001 the U.S. economy was in recession. The NBER announced Nov. 26 a peak in economic activity occurred in March 2001 with the economy entering recession that month.

Employment peaked in March 2001. Between October 2000 and December 2001 industrial production contracted for 14 of 15 months.

APF's 2002 forecast cited recent employment data, primarily the four-week moving average for first-time jobless claims, as a "positive trend" suggesting economic recovery.

Private non-farm payroll employment data released March 8, the last APF memo noted, showed the first improvement since May 2001.

The employment data, coupled with the positive industrial production reading, lead the Policy Foundation to conclude a trough occurred in January 2002 with the U.S. recession ending that month.

It is premature to conclude Arkansas is no longer in a recession based on factors, primarily those affecting the manufacturing and agricultural sectors, discussed at length in the Policy Foundation's 2002 forecast.

--Greg Kaza