Say Anything Blog

Isn’t a recession considered three consecutive quarters with no growth at all?

I don’t think we have had even one so far with no growth.

Definition: A recession is defined to be a period of two quarters of negative GDP growth.

Thus: a recession is a national or world event, by definition. And statistical aberrations or one-time events can almost never create a recession; e.g. if there were to be movement of economic activity (measured or real) around Jan 1, 2000, it could create the appearance of only one quarter of negative growth. For a recession to occur the real economy must decline.

Recession: The Newspaper Definition
The standard newspaper definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters.

This definition is unpopular with most economists for two main reasons. First, this definition does not take into consideration changes in other variables. For example this definition ignores any changes in the unemployment rate or consumer confidence. Second, by using quarterly data this definition makes it difficult to pinpoint when a recession begins or ends. This means that a recession that lasts ten months or less may go undetected.

Recession: The BCDC Definition
The Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) provides a better way to find out if there is a recession is taking place. This committee determines the amount of business activity in the economy by looking at things like employment, industrial production, real income and wholesale-retail sales. They define a recession as the time when business activity has reached its peak and starts to fall until the time when business activity bottoms out. When the business activity starts to rise again it is called an expansionary period. By this definition, the average recession lasts about a year.

So how can we tell the difference between a recession and a depression? A good rule of thumb for determining the difference between a recession and a depression is to look at the changes in GNP. A depression is any economic downturn where real GDP declines by more than 10 percent. A recession is an economic downturn that is less severe.
By this yardstick, the last depression in the United States was from May 1937 to June 1938, where real GDP declined by 18.2 percent. If we use this method then the Great Depression of the 1930s can be seen as two separate events: an incredibly severe depression lasting from August 1929 to March 1933 where real GDP declined by almost 33 percent, a period of recovery, then another less severe depression of 1937-38. The United States hasn’t had anything even close to a depression in the post-war period. The worst recession in the last 60 years was from November 1973 to March 1975, where real GDP fell by 4.9 percent. Countries such as Finland and Indonesia have suffered depressions in recent memory using this definition.

Can you provide us with an enlargeable chart there Rob? I like collecting those sorts of things, as people respond to data better than “opinions”, but it doesn’t do any good if I can’t read it!

Thanks.

"Experience… that most brutal of teachers. But you learn, my God do you learn.” -CS Lewis

Initial Jobless Claims:  448k. That’s the worst level since April 2003.

Q2 GDP: 1.9%, well below consensus of 2.3%.

Q4 GDP Revisions: Revised from +0.6 down to -0.2%; The first negative quarter (Don’t say we didn’t warn you) since Q3 2001.

Q1 GDP Revisions: Revised down to 0.9% from 1.0%

Durable Goods:

Consumer Spending: Despite $100 billion in rebate checks, consumer spending was up only .56%—the bulk of which was (undercounted) food and energy inflation. Nominal spending for the quarter was 3%. 

Inflation: The personal consumption expenditure price index rose at a 4.2% annual rate.

Revisions: A major set of revisions, and nearly all were negative. The economy contracted in the last three months of 2007, providing the first negative quarterly GDP data. Q4 GDP 2007 was revised to a negative number from +0.6% to -0.2%. And, this is very likely to be revised even lower in the future.