The NBER's Business Cycle Dating Procedure: Frequently Asked Questions
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. 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 and second quarters of 2009. The committee places real Gross Domestic Income on an equal footing with real GDP; real GDI declined for final three quarters of 2001 for four of the six quarters in the 2007-2009 recession.
Q: Why doesn't the committee accept the two-quarter definition?
A: 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 employment and a range of other indicators as well. Second, we place considerable emphasis on the monthly business cycle chronology, which requires consideration of monthly indicators. Third, we consider the depth of the decline in economic activity. Note that our definition includes the phrase, "a significant decline in activity." Fourth, in examining the behavior of domestic production, we consider not only the conventional product-side GDP estimates, but also the income-side GDI measure. These are separate estimates of the same concept. The difference between these two measures—called the "statistical discrepancy"—was particularly important in the recessions of 2001 and 2007-2009.
Q: How does the committee weight employment in determining the dates of peaks and troughs?
A: In the recession that began in February 2020, payroll employment reached its peak in that month. This peak coincided with other monthly indicators such as real personal consumption expenditures and real personal income less transfers. In the 2007-2009 recession, real GDP and real GDI gave mixed signals about the peak date, but a clearer signal about the trough date. Employment reached its peak in January 2008, one month after the business cycle peak in December 2007. We designated June 2009 as the trough, eight months before the trough in employment, which is consistent with earlier trough dates in the NBER business-cycle chronology.
Q: Isn't a recession a period of diminished economic activity?
A: It's more accurate to say that a recession-the way the NBER committee uses 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 economic activity is contracting. The subsequent period is an expansion. For example, in 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.
Q: How do the movements of unemployment claims inform the Bureau's thinking?
A: The massive increase in jobless claims in March 2020 indicated a large drop in employment. In other times, a bulge in jobless claims usually forecasts declining employment and rising unemployment, but the claims data can sometimes provide a false signal. The monthly estimates of employment produced by the Bureau of Labor Statistics are more reliable estimates of aggregate employment than are estimates based on the claims data. The employment estimates pertain to the reference period containing the 12th of the month (for payroll employment, the pay period containing the 12th, for the household survey, the calendar week containing the 12th). In March 2020, the weeks ending March 21st and March 28th saw historically unprecedented levels of new claims for unemployment insurance. Thus, in the special circumstances of March 2020, new claims for unemployment insurance indicated a further collapse of employment after the reference week.
Q: How do the cyclical fluctuations in the unemployment rate relate to the NBER business-cycle chronology?
A: The unemployment rate is a trendless indicator that moves in the opposite direction from most other cyclical indicators. Its level in May 1948 was the same 3.5 percent as in February 2020. The NBER business-cycle chronology considers economic activity, which grows along an upward trend. As a result, the unemployment rate sometimes rises before the peak of economic activity, when activity is still rising but below its normal trend rate of increase. For example, the unemployment rate reached its lowest level prior to the December 2007 peak of activity in May 2007 at 4.4 percent and climbed to 5.0 percent by December 2007. On the other hand, the unemployment rate often continues to rise after activity has reached its trough. For example, in the recovery beginning in March 1991, the unemployment rate continued to rise for 15 months after the trough. And following the trough in June 2009, the unemployment rate continued to rise for four months, reaching a peak of in October 2009.
Q: What is the source of the data on real personal income less transfers?
A: Real personal income less transfers comes from Table 2.6, line 36, of the National Income and Product Accounts.
Q: Are there estimates of monthly real GDP?
A: There are no official estimates of monthly GDP for the United States. The BEA publishes many of the ingredients of the quarterly GDP figures at a monthly frequency.
Q: Has the committee ever changed a cycle date?
A: Since 1978, when the Business Cycle Dating Committee was created, there have not been any changes to previously-announced business cycle turning points. Prior to 1978, there were some revisions in turning points; see this article in the May 1975 Business Conditions Digest by Victor Zarnowitz and Charlotte Boschan. The BCDC would change the date of a past peak or trough if it concluded that the date it had chosen was incorrect.
Q: Typically, how long after the beginning of a recession does the BCDC declare that a recession has started? After the end of the recession?
A: The committee's determination of the peak date in February 2020 occurred 4 months after that date, in June 2020. Earlier determinations took between 6 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.
Q: Does the NBER keep a record of when it announced the determination of the dates of peaks and troughs prior to those given in the Bureau's website?
A: The Business Cycle Dating Committee was created in 1978, and since then there has been a formal process of announcing the NBER determination of a peak or trough in economic activity. Those announcement dates were: June 3, 1980; July 8, 1981; January 6, 1982; July 8, 1983; April 25, 1991; December 22, 1992; November 26, 2001; July 17, 2003; December 1, 2008; September 20, 2010; and June 8, 2020. During the period 1961-1978, the U.S. Department of Commerce embraced the NBER turning points as the official record of U.S. business cycle activity, but the NBER made no formal announcements when it determined the dates of turning points.
Q: When the BCDC says that economy activity reached a peak in February, is there a specific date in February?
A: The committee's responsibility to choose dates of peaks and troughs is limited to months and quarters, not weeks or days. Reliable economywide data on employment and production are not available at the weekly or daily frequency, and this prevents the committee from offering an opinion on the week or day in which a peak or trough occurs. Aggregate production and consumption data like GDP and PCE measure production over the entire month (PCE) or quarter (GDP). Aggregate monthly employment data are for a particular survey week during a month. The peak in February 2020 means that economic activity was higher over the month of February than over the month of March. This is consistent with an economy that was expanding in early March, but then fell sufficiently sharply that, overall, March economic activity was lower than in February. Similarly, our determination of a quarterly peak in 2019Q4 means that economic activity over that quarter was higher than over the first quarter of 2020. This determination is consistent with a sharp drop in economic activity beginning in March 2020 that caused aggregate production over 2020Q1 to fall below its value in 2019Q4.
Q: Can you give some examples of how the NBER uses turning-point dates and describes the duration of expansions and contractions?
A: The first complete expansion of the current century started at the trough of the business cycle in November 2001. As of December 2001, the expansion had lasted one month. The expansion ended at the peak of the business cycle in December 2007. Therefore, the expansion lasted 73 months, or six years and one month, from November 2001 to December 2007.
Q: How does the BCDC's quarterly chronology relate to its monthly chronology?
A: The Committee makes a separate determination of the calendar quarter of a peak or trough, based on aggregate economic activity over the relevant quarters. Generally, the peak or trough quarter contains the peak or trough month, but there are exceptions, with 2019Q4 the most recent. (The red highlights on this Excel File indicate when the peak or trough month has been outside the peak or trough quarter.)
Q: Does the NBER identify depressions as well as recessions in its chronology?
A: 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. The NBER determined that a peak in economic activity occurred in August 1929, and that a trough occurred in March 1933. The NBER identified a second peak in May 1937 and a trough in June 1938. Both the contraction starting in 1929 and that starting in 1937 were very severe; the one starting in 1929 is widely acknowledged to have been the worst in U.S. history. According to the Bureau of Economic Analysis, real GDP declined 27 percent between 1929 and 1933, roughly five times as much as in the worst postwar recession. If the term Great Depression is used to mean the period of exceptional decline in economic activity, it refers to the period from August 1929 to March 1933. If it is used to also include the period until economic activity had returned to approximately normal levels, most economists would judge that it ended sometime in 1940 or 1941. However, just as the NBER does not define the term depression or identify depressions, there is no formal NBER definition or dating of the Great Depression.
Q: Does the concept of a double-dip recession exist in the NBER's business cycle chronology?
A: 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. The main criteria that the committee applies to determine whether a downturn following one business cycle peak and apparent trough is a separate recession or the continuation of the earlier one are the duration and strength of the upturn after the initial trough. For example, the committee's determination that the recession that began in 1981 was separate from the one that began in 1980 was based in part on the extent to which major economic indicators bounced back in late 1980 and early 1981. Since its inception in 1978, the committee has not encountered any other episode that involved two consecutive contractions. The committee does not apply fixed formulas in this and other determinations, but rather forms judgments based on the underlying concepts of recessions and expansions and the goal of preserving historical continuity in the NBER business cycle chronology.
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: When was your committee formed?
A: The committee was created by the 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 are experts in macroeconomics and business cycle research.