a few comments about the definition of a "recession"

[unblock]

there are two popular definitions of recession. the first is the most often cited by the msm: two consecutive quarters of negative real gdp growth. the second is the most often cited by knowledgeable economists: whatever the national bureau of economic research says it is.

many people have dismissed the idea that we're in a recession based on both definitions. a few comments regarding the first definition.

it's not bad if you don't stop and think about it. however, as soon as you do, you realize it's stupid as hell. what on earth do QUARTERS have to do with anything? consider this series of monthly real growth rates:

+3 -1 -1 / -2 -2 -2 / -1 -1 +3

so the economy grew by 1% in the first and third quarters and contracted by 6% in the second quarter. SEVEN months of misery, yet no official recession. now consider, on the other hand:

+1 +1 -3 / -3 +1 +1

this time we have only TWO consecutive months of contraction, but there were severe enough and well positioned enough in the calendar to render two consecutive quarters negative. hence we DO have an official recession. had the timing been any other, and the two months been in the same quarter, there would have been no official recession.

dumb, dumb, dumb.

not to mention that it relied solely on a single statistic: real gdp. so it doesn't matter what unemployment is, or income, or sales, or anything else. just gdp. it also doesn't matter how concentrated or widespread the misery is. the rest of the country can be going to hell in a handbasket, but if exxonmobil is adding enough to gdp, then there's no recession.


now for the second definition: this is basically a committee that decides what is and is not a recession, and when it begins and ends. it addresses my concerns above by using monthly, rather than quarterly, cutoffs, and by considering other statistics than just real gdp.

http://www.nber.org/cycles/recessions.html

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. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.


there is one key point, though, regarding timing.

the nber typically takes a while to analyze data, and in any event, they rely on FINAL revised numbers, which take a while for the government to produce. as a result, they don't officially declare a recession to have started until months after it has begun. in fact, the recession could be over before they even declare that it had begun. of course, they backdate the start of the recession to the proper month. it's just that we don't find out about it in real time.

in short, nber might, in september, announce that a recession began in february of this year.


so when people tell you that there's no recession according to nber, that's simply false. the jury is still out.



finally, from a political perspective, "what's the difference" is always a good retort when someone insists we're not technically in a recession. if it walks like a recession and feels like a recession, ..., well what good is piddling little economic growth if it feels like a recession? even if we're not technically in a recession, that's a matter of academic, but not political, interest.

[DJ13]

1. When the government finally admits were in a recession it will only be.....

.....because were already on the verge of something worse, like an actual depression.

[unblock]

2. they'll admit we're in a recession as soon as they can pin it on obama.