What is a recession anyway?

Copyright © HT Digital Streams Limit all rights reserved. Justin Lahart, The Wall Street Journal 3 Min Read 13 Apr 2025, 01:29 IST recession is often defined as two straight quarters of GDP drop. (Image: AFP) Summary, no matter how bad things feel, don’t expect a recession call soon -at least not from the economy -group that is the established arbitrator. A buyer browses by electrical items in a store in San Francisco. What is a recession, and when will we know if we are in one? A general rule is that two consecutive quarters of declining gross domestic product counts count as a recession. The US may already be on that road: GDP looks probably poor in the first quarter, and if it is reported at the end of this month, chances are it even shrunk. With the fallout of rates hit, the GDP could be disputed in the second quarter. But GDP is not the benchmark used by the National Bureau of Economic Research, the long -standing arbitrator of US recessions among economists, government officials, policymakers and news organizations, including the Wall Street Journal. Nber recession dates are determined by its prosaicly nominated ‘Business Cycle Dating Committee’, a group of eight academic economists, some of whom have been members of the committee for decades. What they are looking for to make a recession call is “a significant decline in economic activity that has been scattered on the economy and that lasts more than a few months.” The most important indicators they look at are employment, inflation-adjusted (or real) personal income, actual consumer spending, sales of real manufacturing and trade and industrial production. Some of these measures have been mitigated in recent months. The actual spending in January and February was soft, and sales of trade and manufacturing in January – the most recent available data point – were a month before. Meanwhile, the economy has continued to add jobs this year, revenue is higher, and industrial production has risen. According to these measures, there is at least no indication that a recession has begun. While the Nber does note GDP, the measure has disadvantages as a recession indicator. One is that it can be printed in stock and trade through swings. These factors, together with the decline in government expenses, as pandemic relief efforts deterred, were in the game when the Department of Trade in July 2022 reported that GDP contracted for two consecutive quarters in the first half of that year, even when the US continued to spend millions of jobs and consumers. Another problem: GDP may be subject to considerable revisions, often long after, as 2022 also showed. The Department of Trade reported in July that the second quarter of the second quarter contracted 0.9%at an annual rate of the previous quarter. The next month, it will change to a contraction of 0.6%. This past fall was more revisions, and now GDP shows a narrow profit of 0.3%in the second quarter of 2022. The most important numbers the Nber is watching are also subject to review, which is one of the reasons why the NBER tends to take its time when making recession calls. A ‘Now Hiring’ sign on a Fletcher workshop, NC earlier this month. The NBER Committee is focused on the creation of a chronology of when recessions began and ended, to help other economists in the future to study, says James Potenterba, president of Nber, who is also a member of the committee. As a result, it is fair to say that everyone already knows it, by the time the Nber says there is a recession. When the Nber announced in December 2008 – when the economy was hammered by the financial crisis – that a recession had started a year earlier, that was not exactly news. Recessions end to the point that the indicators are turning the NBER watches upwards, which is not the same as saying that the economy is healthy. “Even if things get better, it can still feel pretty bad,” Powerba said. According to Posterba, the idea of ​​’recession’ appears to have been started as an economic term in 1927 by Nber Research Director Wesley Mitchell. In the early days, the Nber-now was a wide group of mostly academic researchers-especially with economic data collection and analysis. This published the first dates for the beginning and ends of the US recessions in March 1929, based on research conducted by Mitchell with the help of Simon Kuznets. Kuznets would later win a Nobel Prize for Economics, partly for his work that develops the gross national product – the predecessor of GDP – as a measure of the economy. The US became the first country in the world to produce regular statistics on BNP in the 1940s. Put another way, the Nber weighed on a recession before GDP or GDP was a thing. Write to Justin Lahart at justin.lahart@wsj.com, catch all the business news, market news, news reports and latest news updates on live currency. Download the Mint News app to get daily market updates. More topics #us recession coin specials