The NBER's Recession Dating ProcedureBusiness Cycle Dating Committee, National Bureau of Economic ResearchJanuary 7, 2008 This report is also available as a PDF file. The National Bureau's Business Cycle Dating Committee maintains a chronology of the U.S. business cycle. The chronology identifies the dates of peaks and troughs that frame economic recession or expansion. The period from a peak to a trough is a recession and the period from a trough to a peak is an expansion. According to the chronology, the most recent peak occurred in March 2001, ending a record-long expansion that began in 1991. The most recent trough occurred in November 2001, inaugurating an expansion. 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. In choosing the dates of business-cycle turning points, we follow standard procedures to assure continuity in the chronology. Because a recession influences the economy broadly and is not confined to one sector, we emphasize economy-wide measures of economic activity. We view real GDP as the single best measure of aggregate economic activity. In determining whether a recession has occurred and in identifying the approximate dates of the peak and the trough, we therefore place considerable weight on the estimates of real GDP issued by the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce. The traditional role of the committee is to maintain a monthly chronology, however, and the BEA's real GDP estimates are only available quarterly. For this reason, we refer to a variety of monthly indicators to determine the months of peaks and troughs. The committee places particular emphasis on two monthly measures of activity across the entire economy: (1) personal income less transfer payments, in real terms and (2) employment. In addition, we refer to two indicators with coverage primarily of manufacturing and goods: (3) industrial production and (4) the volume of sales of the manufacturing and wholesale-retail sectors adjusted for price changes. We also look at monthly estimates of real GDP such as those prepared by Macroeconomic Advisers (see http://www.macroadvisers.com). Although these indicators are the most important measures considered by the NBER in developing its business cycle chronology, there is no fixed rule about which other measures contribute information to the process. The committee’s approach to determining the dates of turning points is retrospective. We wait until sufficient data are available to avoid the need for major revisions. In particular, in determining the date of a peak in activity, and thus the onset of recession, we wait until we are confident that, even in the event that activity begins to rise again immediately, it has declined enough to meet the criterion of depth. As a result, we tend to wait to identify a peak until many months after it actually occurs. FAQs Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER's recession dating procedure? A: Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, "a significant decline in economic activity." Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology. Q: Isn't a recession a period of diminished economic activity? A: It's more accurate to say that a recession-the way we use the word-is a period of diminishing activity rather than diminished activity. We identify a month when the economy reached a peak of activity and a later month when the economy reached a trough. The time in between is a recession, a period when the economy is contracting. The following period is an expansion. Economic activity is below normal or diminished for some part of the recession and for some part of the following expansion as well. Some call the period of diminished activity a slump. Q: Typically, how long after the beginning of a recession does the BCDC declare that a recession has started? A: Anywhere from 6 to 18 months. We never consider forecasts. In general, the BCDC does not meet until it is reasonably clear that a downturn has occurred. Q: When did the NBER first establish its business cycle dates? A: The NBER was founded in 1920, and published its first business cycle dates in 1929. Q: Why is the NBER considered the official source of economic cycle turning point dates? A: In 1961, the U.S. Department of Commerce’s Bureau of Economic Analysis informed us that it planned to publish our chronology of business cycle turning points in its monthly publication about the business cycle. Doing so served to demonstrate that the government considered our dates “official.” Q: When was your committee first formed? A: When Martin Feldstein became president of the NBER in 1978. Robert Hall has chaired the committee since its inception. Q: How is the committee's membership determined? A: The President of the NBER appoints the members, who include directors of the macro-related programs of the NBER plus other members with specialties in business-cycle research. The current membership is: Robert Hall, Chair -- Director of NBER's Program of Research on Economic Fluctuations and GrowthMartin Feldstein -- President of NBER and NBER Research Associate, Program in Public Economics Jeffrey Frankel -- Director of NBER's Program on International Finance and Macroeconomics Robert J. Gordon -- NBER Research Associate and Professor, Northwestern University Christina Romer and David Romer -– Co-Directors of NBER's Program on Monetary Economics Victor Zarnowitz -- NBER Research Associate and Professor Emeritus, University of Chicago A file of historical background data is available in these formats: |  |
 |
Publications | | Programs | | Data | | About | | People |
