While the economy has shown some signs of life recently, the official arbiter of U.S. business cycles isn't ready to call an end to the recession it says began in March 2001.

In recent weeks, a number of reports have given investors hope that the worst may be over for the economy and that a strong recovery could be in the cards for the second half of the year. Just this week, industrial output showed an unexpected gain, and on Thursday, the leading economic indicators, a gauge of economic activity six months from now, showed a marked improvement.

"It is possible that these two consecutive increases in the April and May LEI reflect the beginning of an upward trend, thereby ending the flat trend that began in early 2002," the Conference Board said.

Meanwhile, the Philadelphia Fed manufacturing index rose to 4.0 in June following a negative reading of 4.8 in May. Consensus expectations called for the index to rise to 4.1.

Yet the National Bureau of Economic Research isn't so sure the economy has turned the corner. In a memo late Wednesday, the committee said it needs "additional time" to interpret "the movements of the economy over the past two years." The NBER declared in November 2001 that the economy had entered a recession in March of that year and it hasn't yet said when, or even whether, that downturn has ended.

Topography

To be sure, the committee typically waits "many months" after an apparent peak or trough to make its declaration "because of data revisions and the possibility that the contraction could resume." The NBER said it waited until December 1992 to announce that a trough had occurred in March 1991.

One issue that continues to plague researchers, however, is the weak employment picture. Although the U.S. economy is experiencing growth in income and output, employment continues to decline, it noted. Indeed, weekly unemployment claims Thursday showed little improvement in the jobless picture. Although the four-week moving average of new unemployment benefits claims fell by 3,000, they remain solidly above the 400,000 level.

In May, the jobless rate edged up to 6.1% to 9 million. Of those, about a fifth had been unemployed for six months or more.

Still, Anirvan Banerji, director of research at the Economic Cycle Research Institute, believes that unemployment isn't as bad as it looks. The service sector accounts for 83% of U.S. employment, he said, and this segment likely bottomed in December 2001. The manufacturing sector, which accounts for just 11% of U.S. employment, is continuing to decline but this is part of a structural shift in the economy, not the result of cyclical changes, he said.

"It's clear to us that the recession has ended," Banerji said. "There are people out there who question it because the jobless rate keeps going up, but that's only a superficial view."

Banerji noted that the economy has been growing now for six straight quarters and likely will show growth in the current quarter. "GDP is saying the recovery began at the end of 2001."

Scorecard

While many people use the Commerce Department's gross domestic product data to determine the start and end of a recession, the NBER uses a slightly different methodology. In the past, the committee defined a recession as "a significant decline in activity spread across the economy, lasting more than a few months, visible in industrial production, employment, real income and wholesale-retail trade. In its latest memo, however, the committee also included that a recovery is "normally visible in real GDP."

GDP began to decline in the first quarter of 2001 but showed growth in the fourth quarter of that year. The committee said it views real GDP as "the single best measure of aggregate economic activity" and places "considerable weight" on that data, suggesting that only the unemployment numbers are holding the committee back from declaring an end to the recession.

In a separate report Thursday, the Commerce Department said the current account deficit widened to $136.1 billion in the first quarter, up from $128.6 billion in the prior quarter. While that was a record, it was narrower than economists' projections, which called for a deficit of $141.5 billion.

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