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US economic downturn near end: NBER

More jobs signal a US economic downturn is ending, the academic group that is seen as the arbiter of US business cycles said on Wednesday, while refusing to formally declare the recession over.

The National Bureau of Economic Research, in a memo posted on its Web site, cited last month's end to a lengthy job drought as a key reason for its optimism that the world's largest economy was on the mend.

"Payroll employment increased slightly in February, the first increase in seven months," the NBER said, "Other signs indicate that the decline in activity that began last year may be coming to an end."

US factory orders have begun to strengthen and on Wednesday the Commerce Department reported a tepid 0.3 per cent gain in retail sales that argued for a modest rise in overall economic activity, which is fueled two-thirds by consumer spending.

The six-member NBER panel said it will make a judgment in the future as to when the economy actually bottomed out and began to recover, saying it wanted to wait for more economic data in order to rule out the possibility that the contraction in economic activity might resume.

Can't declare low point yet

Sometimes the NBER waits for months before formally declaring that a "trough" or low point in a business cycle has been reached. A recession is considered to have ended and recovery to have begun when a trough occurs.

In effect, the NBER is catching up with others who have gone public saying either that the economy is in a recovery phase or that it never was in as steep a decline as thought.

Federal Reserve Chairman Alan Greenspan told Congress last week an expansion was "well under way," thus declaring the US central bank considered the economic downturn was past.

"There certainly has been a lot of good economic news, as Greenspan has acknowledged," said Ben Bernanke, a Princeton University economist who is a member of NBER's panel.

He said the memo was attempting to acknowledge that positive news while still emphasizing that the group has not reached a conclusive judgment on whether the recession is over.

"We are not a forecasting agency," Bernanke said.

Some Bush administration figures, including Treasury Secretary Paul O'Neill, have questioned whether the softer US economic activity last year ever qualified as a recession.

"It seems quite clear now that our economy maybe never suffered a recession," O'Neill said last week. He conceded, though, that the economy had taken a hit following the Sept. 11 attacks that brought the nation's business to a virtual standstill temporarily.

Some private economists have quarreled with the NBER's recession as well.

Some question on recession

US gross domestic product -- the broadest measure of overall economic activity -- shrank during last year's third quarter but resumed growing the following quarter.

As a short-hand definition of a recession, some economists use the rule of thumb that it usually involves two straight quarters of declining gross domestic product.

NBER uses a more nuanced approach to defining recessions. It avoids using GDP as an indicator because it is a quarterly, not a monthly, series and because it is revised frequently.

Instead, it looks at four factors: payroll employment trends, real income, industrial production and wholesale-retail sales, with special emphasis on employment.

Bernanke defended the NBER's methodology.

"We think there really was a recession," he said, but he added that the group all along has tended to think the downturn was probably a mild one by historical standards.

Private-sector analysts said it would be impossible to declare an end to recession before employment resumed growing, since about 1.4 million jobs were shed in the past year.

But the modest addition of 66,000 jobs in February, which helped shrink the monthly unemployment rate to 5.5 per cent from 5.6 per cent in January, apparently helped the NBER decide the worst was over for the economic downturn.

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