Is there an official definition?

Journalist Clark Merrifield contacted me last week about an article he was writing about the recession. His article appeared yesterday Journalist’s resources. Its title is “Are we in a recession? 4 Things Journalists Should Know When Covering the Economic Recession.”

In follow-on emails, Clark and I shared our pet peeves about sloppy journalistic reporting on the numbers. He has one of his 4 tips at #1: “Make clear the difference between quarterly changes and annual rates, especially in the headline.” That is definitely high on my list.

While he and I agreed that the NBER’s Business Cycle Dating Committee is an important arbiter of whether a recession has occurred, we disagreed, as you can see from his article, on whether its definition is official.

In response to his original question to me about how economists came up with the definition of “two quarters in a row of negative GDP growth,” I wrote:

The answer is I don’t know. When I taught macro, which I did as early as 1975 and as late as 2014, I used to tell my students that “two consecutive quarters of negative growth” was the economist’s “seat-of-the-pants” definition. But I don’t know where I got it. “Seat of the pants” is my term because I know that’s not the technical definition. Of course, there is no official definition. 8 economists at NBER provided their views. They are informed opinions but they are opinions, nonetheless. They have no official status.

In his article mentioned above, Clark wrote:

It’s not a recession until the Business Cycle Dating Committee of the National Bureau of Economic Research says so. The nonprofit Economic Research Institute, based in Cambridge, Mass., determines when recessions begin and end. Its purpose is to establish a historical record of recessions, not to rush to say whether the US economy is currently in one. The White House calls the Business Cycle Dating Committee the “official recession scorekeeper.”

It is very powerful. Yes, it is true that the Committee “determines when recessions begin and end.” But that doesn’t mean their determination is official. Thus my statement above.

Furthermore, there is a vexing problem with Clark’s statement. He wrote: “It’s not a recession unless the National Bureau of Economic Research’s Business Cycle Dating Committee says so.” It can’t be true. As is well known, and as he noted, the NBER came to its conclusion with a lag. Let’s say it announces in December 2022 that a recession started in March 2022. It’s not a recession until the NBER says it’s not a recession until December 2022. I think Clark meant “It’s not a recession unless the National Bureau of Economic Research’s Business Cycle Dating Committee says so.” That’s a pretty different statement.

I also think that we should not get caught up in the weeds and remember why Many economists use the “seat of the pants” definition of “two consecutive quarters of negative growth.” Because the NBER committee takes so long, its recession dating has limited utility. Economists want to know more quickly. Various economists have noted that, as economist Matt Russo puts it, “Over the past 75 years, when the nation’s GDP has declined in two consecutive quarters, it has been classified as a recession.”

Will this one be different? I don’t know but I will probably find out before the NBER makes its announcement.

Note: Here’s a great article on the issue from Phil Magness. It’s titled “Biden Borrows Nixon Playbook on Recession,” AIERAugust 1, 2022.

And here’s Phil’s op/ed The Wall Street Journal“A recession by any other name,” WSJJuly 27, 2022 (Print edition July 28.) An original quote:

Economists have long defined a recession as “a period in which real GDP declines for at least two consecutive quarters,” to quote a popular economics textbook by Nobel laureates Paul Samuelsson and William Nordhaus.

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