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In the media, two consecutive quarters of negative GDP growth are generally thought to be the definition of a recession.
But not all economists believe that this simple definition alone is complex enough to actually designate a recession.
Most notably, the National Bureau of Economic Research — a nonprofit that has included some of the most highly respected economists of our time — marks U.S. recessions using indicators that are far more complex than GDP growth alone.
That’s why the likes of ECRI’s Lakshman Achuthan can claim that the U.S. is already in recession, citing economic indicators beyond GDP that are pointing downwards.
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…
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.
Even just the distinction between GDP and GDI demonstrates how including more economic indicators in one’s recession definition allows one to see slowdowns when the common, two-quarter GDP decline definition falls short.
NBER indicates that the U.S. was in a recession from July 1981 to November 1982, and gross domestic income at this time declined. During that same time period, however, GDP continued to grow, albeit at a reduced pace. NBER’s also classified the financial crisis as extending from December 2007 to January 2009, though GDP did not actually decline until the first quarter of 2008:
Simone Foxman/Bureau of Economic Analysis Data
But just because economic indicators are missing analyst expectations does not necessarily mean that the U.S. is in or on track for a recession right now. And don’t expect any insight from NBER—it only decides what constitutes a recession retroactively.