Hooray, it's an official recession

CNET News.com's Larry Dignan says tech investors should be heartened by the gloomy declaration from the National Bureau of Economic Research, an outfit that's notorious for being months late to recognize shifts in the economy.

Larry Dignan
3 min read
Well, folks, it's official; We're in a recession. Now get out those party hats!

Why be happy just because a panel of economists--also known as the National Bureau of Economic Research (NBER)--has officially declared a recession dating back to March? Because that means the worst may be over, especially for the tech sector, which showed signs of a recession well before other industries went into a collective tailspin.

When six sages from fancy universities tell you what tech CEOs and their customers have been saying for months, you know things are about to turn up. The group has a tendency to be a little late to declare a recession.

And this time is no different. Any techies who have lost their jobs, watched stock options drown, or have used one of those "perfect storm" analogies know we're in a recession. "Duh" is the appropriate reaction to NBER's statement, which surprised absolutely no one.

If the economists had listened to the tech sector, it wouldn't have taken that long to figure out a recession was in the making. In April, just a few days after NBER said the recession began, Cisco Systems CEO John Chambers was already talking about the equivalent of the 100-year flood that whacked the telecommunications sector. "The business environment that our segment of the IT industry is facing has never been more challenging," Chambers said at the time.

In July, Sun Microsystems CEO Scott McNealy joined the chorus of tech chieftains delivering profit warnings and talking about "unprecedented economic challenges." Comments about the weak economy became an earnings conference call staple with Sun and other technology companies, many of which also announced layoffs.

The groundswell of bad news became so overwhelming that Wall Street analysts ran out of cliches to describe it. And that was before the Sept. 11 terrorist attacks, which gave technology companies another reason to be pessimistic about their earnings.

After all that, the NBER speaks: "The committee is satisfied that the total contraction in the economy is sufficient to merit the determination that a recession is underway."

Thanks for the memo, guys.

"Forgive us for thinking that there is probably no one less bothered by the constant day-to-day annoyances of the real world than a tenured professor at a prestigious university. But this might help to explain why this same NBER business-cycle committee didn't get around to calling the beginning of the 1990-1991 recession until after it ended, or the March 1991 trough until December 1992 (that's 21 months, or nearly two years, late)," said James Padinha, an economist at Arnhold & S. Bleichroeder.

The NBER backdates its declarations. That means by the time the sages get around to officially announcing a recession, it's over already. Wall Street is already onto the game. As soon as the organization declared a recession on Monday, tech stocks gained. The NBER recession declaration may be the most bullish indicator out there.

It's not clear when the tech sector will rebound. Most prognosticators expect the rebound to start in mid-2002, but you never know. At least the NBER gave us hope that things are turning around. When everyone is running to jump on the bandwagon, it's a good time to head in the opposite direction.

If that axiom sounds counterintuitive, use a little hindsight to spot a few warning signs that the dot-com bubble of 1999 and early 2000 was about to burst. When media behemoth AOL Time Warner (then Time Warner) hopped on the new economy bandwagon by launching its magazine, eCompany Now, you knew the whole New Economy magazine niche was played out. And when cab drivers began offering small talk about day trading and grandmothers began asking about Amazon.com shares, you knew the dot-com era's heyday was over.

Now that the NBER has declared an official recession, the economy is bound to come back. At the very least, NBER's proclamation should give battered tech investors new reason for hope that help is finally at hand.