The National Bureau of Economic Research (NBER) announced yesterday that we have been in a recession since December 2007. The NBER is staffed with brilliant minds and does first class work. But a source of timely information it is not. The organization confirms what most businesses and consumers have been feeling for some time: we’ve been moving backwards in the economy.
The stock market’s dismal performance yesterday nonwithstanding, there’s a lesson for investors. Just as the news of the recession comes too late for investors to protect themselves, by the time investors hear of the recovery, it may well be too late to participate in gains. The NBER’s track record in announcing the end of recessions is instructive. The 2001 recession ended in November 2001 — the NBER’s announcement came in July of 2003. In the preceding recession, the 1990/91 period, the business cycle trough occurred in March of ’91 — the NBER’s announcement came in December of 1992 — by that point the S&P500 had rallied about 50% off of the cycle lows.
The point is not to disparage the NBER, just to realize the futility of market timing. Markets turn around in recessions when a future “light of day” becomes visible (or sometimes merely conceivable). Today’s announcement by the NBER is not cause for despair. Here’s the best news of all: the last two announcements of the onset of a recession by the NBER were actually within a month of the economy’s bottoming.
For those who are interested, the NBER website has a very helpful history of U.S. business cycles.