Is a recession defined as “two negative quarters”?

The US economy is likely to show negative growth in its gross domestic product during the first two quarters of 2022. IAt the end of June, the Bureau of Economic Analysis estimated, based on updated data, that GDP contracted at an annualized rate of 1.6% in the first quarter of 2022.. BEA’s first preliminary estimate of growth in the second quarter of 2022 came out on Thursday morning. But according to the Federal Reserve Bank of Atlanta, which has a “current forecast” model that attempts to gauge real-time economic developments, estimates that the announcement is likely to be another 1.6% decline in the second quarter of 2022..

My question here is one of nomenclature and analysis: does a two-quarter decline in GDP mean that the US economy is in recession? After all, the unemployment rate in June 2022 was 3.6%, which is historically considered a low level. Number of jobs in the US economy fell sharply during the brief recession of the pandemic from $152.5 million in February 2020 to $130.5 million in April 2020, but have been steadily rising since then, reaching $152 million in June 2022.. Similar The labor force participation rate in the US economy fell from 63.4% in February 2020 to 60.2% in April 2020, but has since recovered and has been in the 62.2-62.4% range in recent months.. So could there be a “recession” that occurs simultaneously with low unemployment and a growing number of jobs?

The definition of “droop” is not a physical constant like the boiling point of water. Quite often, a recession is defined as “two-quarters of negative GDP growth.” But there really is no US government-approved definition of “recession.” In the context of the USThe most commonly used recession dates are determined by a group of academic economists under the auspices of the National Bureau of Economic Research. For example, here is my post about NBER statement that February 2020 was the end of the previous economic recoveryhere is my post about NBER announcement that pandemic recession lasted only two months.

The White House Council of Economic Advisers recently named the NBER Business Cycle Dating committee “the official recession counter.” but this is wrong. Although US business cycle dates have long been based on data from NBER researchers dating back to the Great Depression, an organized NBER committee on business cycle dating was not created until 1978. This is not permitted by law. In fact, the lack of an official definition is probably a good thing, because it’s good to keep economic statistics out of the hands of politicians, and there are obvious political implications in announcing dates for when the recession started, continues, or stopped. As in a recent example, if a “recession” were strictly defined as a two-quarter decline in GDP growth, then the Trump administration would be right to say that there was no pandemic “recession” in the US economy at all.

However, there are a number of situations where a recession is actually defined as two negative quarters for GDP growth. For example, here Eurostat publication stating: “A recession is usually defined in terms of zero or negative GDP growth for at least two consecutive
quarters.”
Mister two IMF economists state: “Most commentators and analysts use
a practical definition of a recession, two consecutive quarters of a decline in a country’s real (inflation-adjusted) gross domestic product (GDP).
…” Here The report from the Bank of India (see page 28) called the two-quarter negative GDP growth a “technical recession.” Lord UK Treasury Department “glossary” defining recession: “The generally accepted definition of a recession in the UK is two or more consecutive quarters (a period of three months) of national GDP contraction.” Lord a brief comment from the World Economic Forum, which states: “There is no official, universally accepted definition of a recession. In 1974, American economist Julius Shiskin described the recession as “two successive quarters of declining growth.” and many countries still adhere to it.”

In short, if the US economy has two straight quarters of decline in GDP growth, and some commentators prefer to call it a “recession”, these commentators have good reason – in terms of nomenclature – for this.

But leaving aside the question of whether people can find an excuse for using the word, is the term “recession” appropriate for a U.S. economy with low unemployment and a surge in inflation? Julius Schiesken, mentioned above, was commissioner of the U.S. Bureau of Labor Statistics back in 1974 when he wrote an article for The newspaper “New York Times about bye recession. He wrote:

Rough translation bureau [NBER’s] A qualitative definition of a recession into a quantitative one that almost anyone can use might look like this:

By duration – the decline in real GNP for 2 quarters in a row; decline in industrial production over a six-month period.

In terms of depth, a 1.5% decline in real GNP; 15 percent decline in non-farm payrolls; an increase in unemployment by two points to a level of at least 6 percent.

In terms of diffusion, the decline in non-farm payroll employment in more than 75% of industries, measured over a six-month period, for 6 months or longer.

The specific criteria used by the NBER have changed over time (see below). gentlemen and here), but the general consensus that “recession” should include more than just GDP statistics persisted. Shiskin also wrote in 1974:

The Bureau [NBER] However, the definition of a recession is known only to a small number of business cycle researchers. Many people use the much simpler definition of two-quarters reduction in real GNP, although this definition is simplistic, it has worked quite well in the past. … The general public now seems to be using the term recession to describe a period of economic crisis similar to what we have had in recent months.

As someone who is trying to clear my categories, I wouldn’t call the US economy “in recession” just yet, even if GDP data later this week show two straight quarters of decline. In my opinion, not all economic disasters are properly called “recessions”. The current problems of the US economy, it seems to me, are a mixture of a surge in inflation, which reduces the purchasing power of real wages for everyone, and the continued adjustment of labor markets, supply chains and firms to the effects of the pandemic. But I also wouldn’t be too vocal about those who label “recession” based on two quarters of negative real GDP growth. What’s more, the Federal Reserve’s efforts to curb inflation through a series of interest rate hikes contributed to a series of post-World War II U.S. recessions, so there is a real risk that the U.S. economy will face a combination of lower productivity and job losses in the coming months that by any definition would qualify as a “recession”.