cession a month earlier. Similarly the 2001 recession began in March
when technology spending dropped sharply and well before the 9/11
terrorist attacks.
The Business Cycle Dating Committee is in no rush to call the turn-
ing points in the cycle. Never has a call been reversed because of new or
revised data that have become available—and the NBER wants to keep
it that way. As Robert E. Hall, current chair of the seven-member Busi-
ness Cycle Dating Committee indicated, “The NBER has not made an
announcement on a business cycle peak or trough until there was almost
no doubt that the data would not be revised in light of subsequent avail-
ability of data.”^5
Recent examples of the NBER’s dating make the point: The July
1981 peak was not called until early January 1982, while the November
trough was not dated until July 1983. The July 1990 peak of the expan-
sion was not officially called until 9 months later. The March 1991 trough
was not designated until December 1992, 21 months later, and the March
2001 peak was not called until late in November. And the trough of that
recession in November 2001 was not called until July 2003. Clearly, wait-
ing for the bureau to designate business cycles is far too late to be of any
use in timing the market.STOCK RETURNS AROUND BUSINESS CYCLE TURNING POINTS
Almost without exception, the stock market turns down prior to reces-
sions and rises before economic recoveries. In fact, out of the 46 reces-
sions from 1802, 42 of them, or more than 9 out of 10, have been
preceded (or accompanied) by declines of 8 percent or more in the total
stock returns index. Two exceptions followed World War II: the 1948 to
1949 recession that immediately followed the war and the 1953 reces-
sion, when stocks fell just shy of the 8 percent criterion.
The return behaviors for the 10 post–World War II recessions are
summarized in Table 12-1. You can see that the stock return index
peaked anywhere from 0 to 13 months before the beginning of a reces-
sion. The recessions that began in January 1980 and July 1990 are among
the very few in U.S. history for which the stock market gave no advance
warning of the economic downturn.
As the Samuelson quote at the beginning of this chapter indicates,
the stock market is also prone to false alarms, and these have increased
in the postwar period. Excluding the war years, when declining stockCHAPTER 12 Stocks and the Business Cycle 211
(^5) Robert Hall, “Economic Fluctuations,” NBER Reporter, Summer 1991, p. 1.