Listener Bob Delaney asks a good question:
I thought that a recession had to include two consecutive negative growth quarters. The first & second quarters posted positive growth. Has this Committee succumbed to the politically correct crowd's desire to say that we're in one? Please clear up this matter for me. I have a coffee bet riding on the answer.
My hunch is you've got to buy your friend a cup of coffee.
In the US, it is widely accepted that a recession officially exists whenever the National Bureau of Economic Research says there is one. Specifically, it's their Business Cycle Dating Committee.
They have a helpful explanation of how they decide (down below, in the FAQ).
The relevant part:
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. As an example, the last recession, in 2001, did not include two consecutive quarters of decline. As of the date of the committee's meeting, the economy had not yet experienced two consecutive quarters of decline.
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, but use a range of indicators. 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 2007 and 2008.
categories: Questions from You