How to Call a Recession

Interesting piece in Business Week on the independent National Bureau of Economic Research (NBER). They are the official arbiters of economic downturns, the ones who actually date the beginning and end of recessions.

What it takes to call an actual recession:

"Many people think the definition of a recession is two consecutive quarters of decline in the gross domestic product. But that’s a misperception. Hall and his colleagues will look beyond such simple metrics, weighing monthly GDP estimates, employment data, income, industrial production, and other factors. To call a recession, they’ll look for clear signs of "a significant decline in economic activity spread across the economy, lasting more than a few months."

Any call, if it comes, is going to take a while. The NBER usually takes 6 to 18 months to decide when a recession starts or ends. Hall’s committee didn’t announce the end of the 2001 recession until a full 20 months after the fact…

Check it out . . .

Why So Long to Call a Recession? 
Tim Catts   
Business Week, May 19, 2008, 12:01AM EST

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What's been said:

Discussions found on the web:
  1. Barry Ritholtz commented on May 19

    So I am the only Wonk that finds this stuff interesting?

  2. Greg0658 commented on May 19

    question on independent NBER? who pays the salaries and existance expenses? are they charity, government, or business?

    Indians, Chiefs and the Chiefs Advisors

  3. Jim Haygood commented on May 19

    “a significant decline in economic activity spread across the economy, lasting more than a few months.”

    What if a “bear market” was defined as “a significant decline in common stocks spread across the market, lasting more than a few months”? And we had to wait for months or even years for an official committee to decide retrospectively whether a correction was a “bear market” or not?

    Ludicrous. Utterly ludicrous. Bring on the clowns! Tip the dancing monkeys!

  4. Tom F. commented on May 19

    “The NBER usually takes 6 to 18 months to decide when a recession starts or ends. Hall’s committee didn’t announce the end of the 2001 recession until a full 20 months after the fact…”

    Almot two years after the fact to call the end of a recession. What’s the point in doing something that ridiculous? That organization is an utter waste of time, resources, and brain power (if there is in fact any of that).

  5. CaptiousNut commented on May 19

    Recession or no?

    It’s essentially a semantical argument.

    Tell us some stocks to short TODAY.

  6. Joe Klein’s conscience commented on May 19

    I echo others when asking how it takes two years after the fact to call a recession. Is it because they fear talking about it will delay getting out of it? And now, there is obviously tremendous pressure not to say much of anything as it could(and rightly would) effect the coming election.

  7. Jim Haygood commented on May 19

    Further to Tom F.’s point, I would assert that the U.S. economy experienced a double-dip recession during 2001-2003. The ISM manufacturing index, for instance, recovered from the low 40s in Fall 2001 to the mid 50s in Spring 2002. But then it fell back below 46 in early 2003. The index did not exceed its Spring 2002 level until Fall 2003.

    The NBER would have us believe that, unlike in nearly every other recession on record, stocks troughed almost a year AFTER the 2001 recession ended. But in actuality, the S&P troughed in Oct. 2002, about six months before the “double dip” recession of 2002-2003 troughed in Spring 2003. So stocks performed their usual leading-indicator role of anticipating the recovery.

    Deplorably, the NBER’s ivory-tower crew of PhD eggheads can’t even get the basics right. If they even understood Home Economics 101, they’d realize that their role as economic actors involves VALUE SUBTRACTION. Losers!

  8. At These Levels commented on May 19

    Vet the Messengers, Too

    When you’re reading your morning paper, tuning into your favorite cable news gabfest or catching up on the Democratic primary squabble, remember to evaluate as well the sources of the information you’re ingesting.As is his wont, Barry Ritholtz, a nerd s

  9. Formerly known as… commented on May 19

    OK I think this more precise definition of calling a recession makes sense. So here is the question…Has there ever been an official NBER recession where we did not have negative GDP?

  10. Sekar commented on May 19

    Does the NBER take into account currency devaluation into their analysis ? If not, why not ?

  11. Flic commented on May 19

    “The highest unemployment rate during any of the four downturns came during the one a quarter-century ago, when the rate hit 10.8%. The country is far from that level now, with unemployment at 5.0% in April, according to the federal government’s Bureau of Labor Statistics.”

    If the same metrics were used in calculating the unemployment rate that were used in 1981, you could use that argument. It’s not calculated the same way so why make a comparison??? Apples to oranges….just like current CPI vs. the 70’s….

  12. Bruce commented on May 19


    Yes you are the only one…still like the website.

    Bruce in Tennessee

  13. raft commented on May 19

    Here are the 4 variables (IP, jobs, Income less transfers, retail sales), all constant values charted together since 1991.

  14. Darkness commented on May 19

    I’ll second that this is a semantic argument, but add that “words mean something”.

    The sad thing about the article is that it reinforces the notion of the silly academic priesthood that supposedly runs everything behind the scenes, according to wingnut circles. As opposed to the over-compensated country club circle that is really causing the pain at the blue collar level.

  15. Berkeley commented on May 19

    Does it even matter whether we are “officially” in a recession or not?

  16. cinefoz commented on May 19

    BR asked

    So I am the only Wonk that finds this stuff interesting?

    reply: Most humble apologies but the NBER recession analysis is backward looking. I am more interested in the future and the obvious speaks for itself.

    Anyone who spends about $100 to fill up their gas tank weekly or more often really doesn’t give a shit about semantics. They’re hoping for an angel to come down and fix stuff.

  17. Trade-Equity commented on May 19

    While trying to take a sabbatical view from outside of the semantical view, all I can think of is the fact that indicators are usually either forward looking or lagging(per wiki:economic indicator that reacts slowly to economic changes, and therefore has little predictive value).

    While what the National Bureau of Economic Research is stellar history reading, and something that will be very helpful when battling the next economic downturn. For the next 12-18 months it will make great bird cage liner.

    Lets take a close look a the Stock Market and try to focus on 6 months after the Dow breaks out of the trading range (12500-13500). The Dow will be 6 months ahead of the end of the recession that people will still be gathering information on. Until then ride the wave back and forth.

    Good Fortune from Trade Equity!!!

  18. VJ commented on May 19

    Hall’s committee didn’t announce the end of the 2001 recession until a full 20 months after the fact…

    And they STILL got it wrong.

    The NBER declared the recession had ended in the 4th QTR of 2001, based upon the administration’s report that the GDP had increased by 1.4%. Of course, without the military spending on the war in Afghanistan, GDP would have still have been negative. Hence, the private-sector remained in recession. The same was true of the 1st QTR of 2002.

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