Wednesday, February 06, 2008

The Recession Question

In anticipation of students researching the recession question, we might want to have this report handy. On January 23rd the Congressional Research Service (CRS) issued a four page report, "What is a Recession, Who Decides When it Starts, and When Do They Decide?" The commonly accepted definition of a recession as two consecutive quarterly declines in GDP is not the one used by economists. They rely on NBER for the official definition and the dating of recessions in the U.S. Recently the NBER dating committee clarified the definition by emphasizing that recessions require a downturn to be apparent in many economic activities at about the same time.

Their definition:
A recession 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.

The report includes the dates of all business cycle turning points (recessions and expansions) since 1980 and the date they were announced by NBER. It can be months or even in some cases more than a year after the start that the committee announces the date of the beginning of a recession.

So while waiting for the official NBER dating, what data can we use to forecast the likelihood of a recession? The House Joint Economic Committee explains a new approach in a report on the Employment Recession Probability Index.

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