The press is abuzz with claims that the United States is in recession because real GDP declined in both the first and second quarters of 2022. Many people use this “two consecutive quarters of declining GDP” formula as an informal indicator of a recession. And, they are generally right, it has been useful: since 1950, nine of 11 recessions designated by the National Bureau of Economic Research (NBER) Business Cycle Dating Committee (BCDC) included at least two consecutive quarters of falling GDP. Moreover, given the recent slowdown in economic activity, people are starting to feel as if they are experiencing a recession. Indeed, going forward, we expect that a recession will be associated with the disinflation which the Federal Reserve seeks (see our recent post).
Nevertheless, in current circumstances, there are good reasons not to rely on the simple recipe that equates two consecutive quarters of falling GDP with a recession. Indeed, when people ask us whether the economy currently is in a recession—something that occurs daily—we respond: “not yet, but very likely over the next year.”
In this post, we provide a primer on the criteria that the NBER BCDC uses to produce the authoritative dating of U.S. recessions. (The complete NBER cyclical chronology is here.) We explain how economists improve upon the simple formula by using multiple sources of information that are observed frequently and are less prone to large revisions—especially around business cycle turning points. We conclude with a brief explanation of why the risk that the United States will enter a recession in the near future is very high….
Even the most casual reader of financial and economic news knows that the speed of economic growth matters. Businesses―manufacturers, service providers, and retailers, among others―need to know so that they can decide how much to invest in new production facilities, how many people to employ, and what to stock on their shelves. Fiscal policymakers need to know so that they can estimate government revenue and expenditure. And monetary policymakers need to know so that they can adjust their policies in an effort to ensure low, stable inflation and strong, stable, and balance growth.
But, does it make sense for all of these people―firms, households and governments―to focus on fresh estimates of GDP? How much attention should we pay to any new number? That is, when the U.S. Bureau of Economic Analysis (BEA) announces that their initial estimate of growth for the quarter just ended is 2% or 3% or (as it was last week) 4%, what should we think?
While GDP was once a key cyclical indicator, its value has declined substantially. In this post, we highlight three reasons: timeliness, seasonal adjustment and revisions. Not surprisingly, in the era of big data, those who need information on growth are increasingly turning to more timely indicators customized to their needs….
“Negative capability … is when a man is capable of being in uncertainties, mysteries, doubts, without any irritable reaching after fact and reason…” John Keats, 1817.
Will growth be high in the future? Or, will it be low? Everyone is preoccupied with this question in one way or another. Individuals worry about whether their real incomes will grow. Fiscal policymakers wonder what will happen to tax revenues and required expenditures. And central bankers are trying to figure out whether they should ease or tighten monetary policy...
Growth from the fourth quarter of 2013 to the first quarter of 2014, originally thought to have been about +0.1% in April, was revised last week to –2.9%. That’s at a seasonally-adjusted, annualized rate (SAAR) – the way the U.S. Bureau of Economic Analysis (BEA) usually reports real GDP growth. News reports varied between shock and concern. Was the anemic recovery over?Or, was it just that this winter was especially harsh?
In reality, these headline growth numbers simply don’t contain all that much information for real-time business cycle analysis...
