What Is A Recession?

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Before asking an economist about the next recession, understand what the economist considers a recession to be and what we know about them.

The accepted arbiter of business cycles in an unofficial group, the Business Cycle Dating Committee of the National Bureau of Economic Research, which says:

A recession is a period between a peak and a trough, and an expansion is a period between a trough and a peak. During a recession, a significant decline in economic activity spreads across the economy and can last from a few months to more than a year.

Two consecutive quarters of declining GDP is a common rule-of-thumb but not the actual definition. The NBER committee looks at a broad range of data to determine if the length of the downturn fits its idea of a recession, and if the decline has spread across most of the economy. So the current oil patch slump is not a recession. It feels that way in North Dakota but not in the rest of the country. In the end, the committee uses its members' judgment, and the result is a set of dates for economic peaks and troughs, with recession defined as the period between the peak and the trough.

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The economy comes out of recession when it begins to rise, not when it has regained lost ground. I often tell the story of a man walking down the street who falls into a 10-foot hole. As he's falling down, I say that he's in recession. He hits bottom and then takes one step up, and I say that he's out of recession. Other observers note that he's still nine feet down a 10-foot hole.

The phrase "business cycle" is a bit misleading, at least to people used to thinking of sine waves and sunspots, which have very predictable cycles. The time between recessions has ranged from 10 months to 120 months with an average of 38 months, but that time between recessions has increased since World War II - good news.

As I write, the economy has been out of recession for 89 months, a good bit more than average. However, expansions don't die of old age, as we economists like to say. The odds of going into a recession don't increase just because the expansion has been going on a while.

The length of recessions is also highly variable: six months to 65 months, again with better performance since the 1940s.

For more information, I have compiled in one place my answers to common Questions About Recessions.