What does the U.S. mean by a recession?
A recession is a significant decline in economic activity that spreads across the economy and lasts more than a few months. In the United States, the National Bureau of Economic Research (NBER), a private nonprofit research group, dates recessions through its Business Cycle Dating Committee. The committee looks at the wider economy instead of using one automatic cutoff.
How does the NBER decide?
The committee weighs depth, diffusion, and duration: how severe the decline is, how widely it spreads, and how long it lasts. These factors can balance one another. A very deep, widespread downturn can count as a recession even if it is brief.
Think of it like judging whether someone is sick: a fever matters, but so do its severity, other symptoms, and how long it lasts. The NBER uses a similarly broad check of the economy. In 2020, the recession lasted two months, from a peak in February to a trough in April. Its severity and breadth led the committee to identify it as a recession despite its short duration.
The committee considers measures such as employment, real personal income, consumer spending, industrial production, and output. If those measures disagree, it weighs them together rather than relying on gross domestic product (GDP), a measure of the goods and services produced in the country, alone. I'd start with that broader pattern rather than treating any one number as the answer.
Why don't two falling GDP quarters settle it?
Two consecutive quarters of falling real GDP are often called a “technical recession.” Real GDP adjusts the measure of economic output for price changes. The phrase describes a GDP pattern; it is not the NBER’s official test for dating a U.S. recession.
In 2022, real GDP fell in both the first and second quarters, while employment and other measures showed a different picture. The NBER did not date that period as a recession. Looking beyond GDP helps distinguish a fall in one major measure from a significant downturn spread across the economy.
What can recession indicators tell you?
Some indicators track economic conditions as they change, but they do not make the NBER’s determination. The Sahm Rule, an indicator based on the unemployment rate, signals when its three-month average rises at least 0.50 percentage points above its low over the previous 12 months. It is a timely labor-market signal, not a declaration that a recession has begun. I'd treat it as an alert to watch, not a final verdict.
The NBER dates downturns after the fact, so its announcements may come after a contraction is underway.
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