compiled by staff
The National Bureau of Economic Research, founded in 1920, is a private, nonprofit, nonpartisan research organization based in Massachusetts.
Its Business Cycle Dating Committee maintains a chronology of the U.S. business cycles that comprises alternating dates of peaks and troughs in economic activity.
According to the NBER, through its website at www.nber.org:
A recession is a period between a peak and a trough, and an expansion is a period between a trough and a peak.
During a recession, a significant decline in economic activity spreads across the economy and can last from a few months to more than a year.
Similarly, during an expansion, economic activity rises substantially, spreads across the economy, and usually lasts for several years.
In both recessions and expansions, brief reversals in economic activity may occur, such as a recession may include a short period of expansion followed by further decline, and an expansion may include a short period of contraction followed by further growth.
The committee has no fixed rule to determine whether a contraction is only a short interruption of an expansion, or an expansion is only a short interruption of a contraction.
The NBER published its first business cycle dates in 1929.
The bureau is governed by a board of directors with representatives from the leading U.S. research universities and major national economics organizations.
Its main office is in Cambridge, Mass., and it has a branch office in New York City.
The bureau posted frequently asked questions on its website. Here is a summary.
The financial press often states the definition of a recession as two consecutive quarters of decline in real Gross Domestic Product. How does that relate to the NBER’s recession dating procedure?
Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. In 2001, for example, the recession did not include two consecutive quarters of decline in real GDP. In the recession beginning in December 2007 and ending in June 2009, real GDP declined in the first, third, and fourth quarters of 2008 and in the first quarter of 2009. The committee places real Gross Domestic Income on an equal footing with real GDP; real GDI declined for six consecutive quarters in the recent recession.
Why doesn’t the committee accept the two-quarter definition?
The committee’s procedure for identifying turning points differs from the two-quarter rule in a number of ways. First, we do not identify economic activity solely with real GDP and real GDI, but use a range of other indicators as well. Second, we place considerable emphasis on monthly indicators in arriving at a monthly chronology. Third, we consider the depth of the decline in economic activity. Fourth, in examining the behavior of domestic production, we consider not only the conventional product-side GDP estimates, but also the conceptually equivalent income-side GDI estimates.
How does the committee weight employment in determining the dates of peaks and troughs?
In the 2007-2009 recession, the central indicators, real GDP and real GDI, gave mixed signals about the peak date and a clear signal about the trough date. The peak date at the end of 2007 coincided with the peak in employment. We designated June 2009 as the trough, six months before the trough in employment, which is consistent with earlier trough dates in the NBER business-cycle chronology.
Isn’t a recession a period of diminished economic activity?
It’s more accurate to say that a recession 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 economic activity is contracting. The following period is an expansion. As of September 2010, when we decided that a trough had occurred in June 2009, the economy was still weak, with lingering high unemployment, but had expanded considerably from its trough 15 months earlier.
What about the unemployment rate?
The unemployment rate lags behind the NBER cycle dates as a general matter. It reaches a low point somewhat later than the peak in activity and usually remains at high levels after activity reaches its trough. For example, in the recovery beginning in March 1991, the unemployment rate continued to rise for 15 months after the trough. The lag was 19 months in 2001 to 2003. In the current recovery, the lag was only four months, from the trough in activity in June 2009 to the highest point of the unemployment rate in October 2009. But even in September 2010, the unemployment rate remained at high levels, even though these levels were below the maximum reached in October 2009.
Typically, how long after the beginning of a recession does the Business Cycle Dating Committee declare that a recession has started? After the end of the recession?
The committee’s determination of the peak date in December 2007 occurred 11 months after that date and the committee’s action in determining the trough date of June 2009 occurred 15 months after that date. Earlier determinations took between six and 21 months. There is no fixed timing rule. The committee waits long enough so that the existence of a peak or trough is not in doubt, and until it can assign an accurate peak or trough date.
Does the NBER identify depressions as well as recessions in its chronology?
The NBER does not separately identify depressions. The NBER business cycle chronology identifies the dates of peaks and troughs in economic activity. We refer to the period between a peak and a trough as a contraction or a recession, and the period between the trough and the peak as an expansion. The term depression is often used to refer to a particularly severe period of economic weakness. Some economists use it to refer only to the portion of these periods when economic activity is declining. The more common use, however, also encompasses the time until economic activity has returned to close to normal levels. The most recent episode in the United States that is generally regarded as a depression occurred in the 1930s.
Does the concept of a double-dip recession exist in the NBER’s business cycle chronology?
The NBER does not define a special category called a double-dip recession. Two periods of contraction will be either two separate recessions or parts of the same recession.