CAMBRIDGE, Mass. (TheStreet) -- From a small office between the campuses of Harvard and MIT, a coterie of influential economists at the National Bureau of Economic Research serves as the official arbiter of when these woeful business cycles begin and end.
The NBER, which began as a small nonprofit, has evolved into one of the nation's leading
research organizations. Sixteen of the 31 American Nobel Prize winners in economics and six of the past chairmen of the President's Council of Economic Advisers have served as researchers for the group. The number of active researchers publishing their work through the NBER totals nearly 1,000, and notable members have included Federal Reserve Chairman Ben Bernanke, Paul Krugman and Milton Friedman.
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This year, all eyes are on the NBER as average Americans look for signs that the worst economic decline since the Great Depression is over. While the NBER provides the final word on when a recession ends, that decision doesn't come quickly.
In November 2008, the group's Business Cycle Dating Committee, led by Robert Hall, decided that economic growth had peaked in December 2007 after 73 months of expansion, giving way to recession. It might take six to 18 months after the recession ends for the NBER to weigh in.
The NBER was officially chartered as a nonprofit institution by the state of New York in 1920, its work funded by early benefactors that included the Rockefeller and Carnegie foundations. Its creation was at a forefront of a trend that would see the launch of similar think tanks, including the Conference Board and Brookings Institution.
"Government was starting to play a bigger role in the economy," says NBER President James Poterba, an economics professor at MIT. "There was a need to carry out research that could be background information for policymakers as they tried to wrestle with big economic problems."
In its early days, NBER pioneered studies on income, manufacturing and employment, laying the groundwork for some of the economic indices taken for granted today.
"This was a period before there were national income accounts," Poterba says. "There wasn't any standard measure of gross national product, personal income or the savings rate."
A 1927 NBER publication by Wesley Clair Mitchell used the term "recession" to describe a shrinking economy. Periods of expansion and decline were previously called "upturns" and "panics." Since then, much of the NBER's prominence has come from its business-cycle research. During the Kennedy Administration, these efforts were formalized and its work was given an official government imprint.
Though other financial experts work from a simplified definition of what fuels a recession -- usually two consecutive quarters of declining gross national product -- the NBER weighs many indicators, including personal income, retail and wholesale sales, industrial production and employment.
While the NBER hasn't called an end to the current recession, Hall said in a recent interview with
that there was a "trough in output" during the summer. Since then, the
Dow Jones Industrial Average
has topped 10,000. The
S&P 500 Index
is headed for its biggest annual return since 2003.
Unemployment is easing, with only 11,000 workers losing jobs in November compared to an average of 135,000 during each of the previous three months. Productivity rose at an annual rate of 9.1% during the third quarter, its largest gain in six years. Wages and retail sales are also showing signs of improvement.
Last month, the National Association for Business Economics reaffirmed its call that "the Great Recession is over," and a survey of its members predicted continued economic growth in 2010. The group expects a housing rebound, low inflation and rising stock prices to overcome sluggish consumer spending.
"Within the next few months, companies should be adding instead of cutting jobs," says NABE President Lynn Reaser.
The NBER plans to stay quiet until the economic data are considered final.
"One of the great frustrations people have with the NBER and its business-cycle dating activity is the question, 'Why aren't you doing this in real time?'" Poterba says. "We are happy to wait until the revised versions of data come though and take our time so that we create a chronology that's for historical purposes. We are much more concerned about getting the peak right than about offering our guess of the peak."
When the group isn't evaluating business cycles from its Cambridge headquarters or its satellite offices in New York and Palo Alto, Calif., researchers are applying economic theories to everything from corporate debt to sports. However, the group draws the line at advocacy. It's part of the NBER's nonpartisan philosophy.
"We do not make policy statements," he says. "We can identify problems, but not offer solutions."
-- Reported by Joe Mont in Boston