Who Determines Recessions in the US?
When it comes to dating US recessions, the National Bureau of Economic Research (NBER) wears the crown. Not only do they excel in economic research, but their ‘Business Cycle Dating’ is the definitive guide to identifying economic downturns.
What Exactly is a Recession?
A recession is a substantial decline in economic activity that lingers for a few months. The hallmarks? Depth, diffusion, and duration.
Depth
Depth refers to how severe the recession is. It’s not just about a mere decline in economic output; it’s about how deep that decline goes. It’s the ‘how bad is it?’ factor, quantified often by the percentage contraction in GDP, job losses, or decline in consumer spending.
Diffusion
This term is about the reach of the recession across various sectors or geographic regions. Is it only affecting the manufacturing sector, or is it causing a ripple effect across services, technology, and retail as well? The wider the diffusion, the more systemic the recession is considered to be.
Duration
Duration is exactly what it sounds like—how long the recession lasts. Short-lived recessions might only last a couple of quarters, but some could drag on for years. The duration can significantly impact the economy’s ability to recover and return to a state of growth.
This is important to know, but as we are not in a recession (yet) it makes little sense to talk further about severity. We will attempt to unpick identifying a recession first. Let’s do that by looking at the same metrics the NBER do.
Debunking the GDP Myth
Guaranteed; you’ve heard this before: Two negative GDP quarters in a row mean there’s a recession. Think again. While often an indicator, it’s not etched in stone. This is often true of a recession, but does not make a recession in and of itself. In fact, NBER steers clear of GDP in their recession definitions. We will too.
The Subtle Arrival of a Recession
It’s important to note that recessions don’t barge in; they saunter. The data releases for the metrics are scattered across different days of the month, and usually only released once per month (sometimes longer). That means you have to slowly piece together the picture and to be highly tuned in to detect the early signs of a recession.
Don’t worry. We’ll do that for you.