How American Recessions Are Officially Dated

The common definition of a recession as two consecutive quarters of falling output is not the American standard. The official determination is made by a private committee using broader criteria.

Who makes the call

A committee at a nonprofit economic research organization identifies the peaks and troughs that mark American business cycles, and its dates are treated as authoritative.

The committee has no government role and no policy function. Its output is a chronology used by researchers, statistical agencies and commentators.

Its determinations are made retrospectively, sometimes long after the turning point has passed, because the data needed are revised repeatedly before settling.

What the committee looks at

The definition used describes a significant decline in economic activity that is spread across the economy and lasts more than a few months.

Depth, diffusion and duration all matter, and the committee has stated that extreme severity in one dimension can compensate for weakness in another.

Measures examined include employment, personal income, industrial production and measures of output, rather than any single headline series.

Why the two-quarter rule falls short

Output measures are revised substantially after first publication, so a quarter initially reported as negative can later be revised upward, and the reverse.

A mechanical rule also produces odd results, such as declaring no recession during a sharp but short collapse, or missing a broad downturn spread unevenly across quarters.

The committee approach trades timeliness for accuracy, which is defensible for a historical chronology and unhelpful for anyone wanting an answer in real time.

The lag and what fills it

Because official dating arrives late, market participants rely on indicators that move earlier, including labor market data, credit conditions and survey measures.

Several rules of thumb based on employment trends have been proposed as faster signals, and they carry the usual caveat that any rule fitted to history may not repeat.

Financial markets typically reprice well before a recession is dated, which is why equity declines and official announcements rarely coincide.

What the label does and does not mean

A recession describes aggregate activity and says nothing directly about any individual household, industry or region, which can diverge sharply from the national picture.

Recessions in the American record have differed enormously in depth, length and cause, so the category groups events that have little else in common.

The chronology, methodology and announcements are published by the organization itself, which is the source rather than any summary of it.