Think recessions begin when GDP is negative? Think 2 quarters of negative growth are required to start a recession?
If you believe either of those, you are wrong.
The NBER is the official arbiter of recessions in the US. Here’s a list of US Business Cycle Expansions and Contraction Dates by the NBER.
Using start dates I created the following chart.
Recession Starting Dates vs. GDP
NBER FAQs
The NBER has a list of Business Cycle Dating Procedure: Frequently Asked Questions that inquiring minds may wish to read. This is a partial list:
Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER’s recession dating procedure?
A: Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. In 2001, for example, the recession did not include two consecutive quarters of decline in real GDP. In the recession beginning in December 2007 and ending in June 2009, real GDP declined in the first, third, and fourth quarters of 2008 and in the first quarter of 2009. The committee places real Gross Domestic Income on an equal footing with real GDP; real GDI declined for six consecutive quarters in the recent recession.
Q: Why doesn’t the committee accept the two-quarter definition?
A: The committee’s procedure for identifying turning points differs from the two-quarter rule in a number of ways. First, we do not identify economic activity solely with real GDP and real GDI, but use a range of other indicators as well. Second, we place considerable emphasis on monthly indicators in arriving at a monthly chronology. Third, we consider the depth of the decline in economic activity. Recall that our definition includes the phrase, “a significant decline in activity.” Fourth, in examining the behavior of domestic production, we consider not only the conventional product-side GDP estimates, but also the conceptually equivalent income-side GDI estimates. The differences between these two sets of estimates were particularly evident in the recessions of 2001 and 2007-2009.
Q: Typically, how long after the beginning of a recession does the BCDC declare that a recession has started? After the end of the recession?
A: The committee’s determination of the peak date in December 2007 occurred 11 months after that date and the committee’s action in determining the trough date of June 2009 occurred 15 months after that date. Earlier determinations took between 6 and 21 months. There is no fixed timing rule. The committee waits long enough so that the existence of a peak or trough is not in doubt, and until it can assign an accurate peak or trough date.
Q: Has the NBER previously determined a trough date prior to the time when economic activity surpassed its previous peak?
A. Yes, the NBER has done this before. For example, on July 8, 1983, the committee announced that a trough had occurred in November 1982 before real GNP had exceeded its 1981 third quarter peak.
Also consider Economists Scramble to Reassess Recession Odds.
Mike “Mish” Shedlock
Asking academics about the real world economy is exactly like asking celibate nuns about sex. Its too ridiculous to waste time on
Nice post.
Rule of Thumb – When ardent bullz throw in towel, at or near trough of recession.
Then the question is whether recession will be V or U shaped.
US won’t be seeing a V shaped recovery for a long long time (ie: until massive debt overhang addressed)
Weirdly there are few recessions in election years. Can’t imagine why.
Directly after reading this, I saw the following headline on Yahoo Finance: “Donald Trump’s economic plan could cause a recession”…Thoughts?
So will Hillary’s
Like
Good description of NBER process and possible starting and ending times not linked to GDP. Recessions start with a business cycle peak. If we are currently in a recession, when did the peak occur?
Hi Jeff
No one can answer that until all the back revisions are in!
When will that be?
Mish
Recession, recession, recession,,,so, we have been on the “verge” of one now for going on 8 years. What if one actually happens? Will that signal the bottom, and a buying opportunity like at the beginning of the last Billary administration, where they drove the nominal price of equities, housing and everything else up by nearly three fold in their 8 year term?
As for The Donald’s chances of ever occupying the Oval Office, not a snowballs chance in hell. We are way beyond critical mass, to the point the vast majority of voters now take more from the public till than they contribute. And certainly the corporate media is on board the agenda, lock, stock and IT.
Any thoughts on the economic implications of next inevitable administration? More appointments like Franklin Raines? More banking deregulation? More deficit spending? Another 50% plus devaluation of the currency? Massive redistribution of wealth to the FIRE sector and the MIC?
Or is it we just don’t want to face the reality of a system operated by apparatchiks appointed by a ruling corporatist elite? Neo-Robber Barons, as it were?
After the “Election” it will be too late to posture portfolios. Now is the time to plan. As Trump’s odds continue their downward trend, and before the October Surprise is dropped on him by the entire system, finishing him off for good, now is the time to get ready for the coming Super Keynesians installation into power.
Two quarters of negative GDP cannot be a good definition of a recession. It would never be acceptable to serious economists. For instance, to have the same rule of thumb for a developing country with a rapidly expanding population and infrastructure as a developed country which might have a declining population?