What is a Recession?

Who Determines Recessions in the US?

The National Bureau of Economic Research (NBER) serves as the authoritative source for identifying US recessions through their “Business Cycle Dating” methodology, which establishes the definitive timeline for economic downturns.

What Exactly is a Recession?

NBER defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months”. It judges 3 things:

Depth

Depth measures the severity of the recession: how much economic output contracts. This metric is typically quantified through GDP percentage declines, job losses, or reductions in consumer spending.

Diffusion

Diffusion describes how broadly the recession spreads across economic sectors and geographic regions. A more widespread impact across manufacturing, services, technology, and retail indicates a more systemic economic downturn.

Duration

Duration refers to how long the recession persists. Some recessions last only a few months. The 2020 recession lasted 2 months. Others run much longer: the longest since 1945, from December 2007 to June 2009, lasted 18 months, and the Great Depression contraction lasted 43 months.

Debunking the GDP Myth

A common misconception holds that two consecutive negative GDP quarters automatically signal a recession. However, this is not universally true. While often an indicator, it doesn’t definitively establish a recession. NBER does not rely on GDP alone. It looks at real GDP and real GDI alongside monthly measures such as payrolls, real income and real spending.

The Subtle Arrival of a Recession

Recessions develop gradually rather than arriving suddenly. Economic data releases occur on different dates throughout the month, typically appearing monthly or less frequently. This staggered release schedule requires careful monitoring to detect early recession signals through accumulated evidence.