IT’S NOT A RECESSION UNTIL THE COMMITTEE SAYS IT IS.

IT’S NOT A RECESSION UNTIL THE COMMITTEE SAYS IT IS. I posted a couple days ago on the definition of a recession, expressing a preference for the simple test of two quarters of negative growth in Gross Domestic Product. I should have added that, of course, real GDP should be used (that is, the effect of inflation should be eliminated). I also have to acknowledge that there is an official definition of “recession” and the two-quarter-negative-growth-in-GDP definition is not it. There is a committee of the National Bureau of Economics (the “NBER”) that officially determines whether there has been a recession. This article labels the two-quarter definition as the “folk definition” and describes the process the NBER committee follows. The NBER process gives the committee a great deal of discretion. The NBER definition is “a significant decline in economic activity, spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.” A drawback is the delay involved. A chart in the article shows that for the troughs of the last two cycles (March 1991 and November 2001) the NBER announcement came 22 months and 21 months after the event. I prefer the precise two-quarter definition, but a committee of sportswriters picks the “Most Valuable Player” in each major league every year on even more nebulous criteria, and the result is generally accepted.