Two shrinking quarters is not the official definition of a recession everywhere
Ask most people what a recession is and they'll say two quarters in a row of falling GDP. In Britain and Canada that is roughly right. In the United States it is not: the government's own statistics agency says that rule carries no official weight, and a private panel of economists makes the call.
That panel is a dating committee run by the National Bureau of Economic Research, a private research body treated as the arbiter of when American downturns begin and end. It looks for a significant fall in activity spread across the economy and lasting more than a few months, visible in real income, jobs, industrial output and wholesale and retail sales as well as GDP. A recession, in its terms, runs from a peak of activity down to a trough. The European Union takes a similarly broad view.
The popular shortcut has a surprisingly specific origin. In 1974 Julius Shiskin, who headed the Bureau of Labor Statistics, wrote in The New York Times a rough guide anyone could use. His list covered duration, such as two consecutive quarters of falling real national income; depth, such as a 1.5 percent drop in that income or unemployment rising two points to at least 6 percent; and diffusion, with job losses in more than three-quarters of industries. Over time commentators dropped nearly everything except the two-quarter test.
Other bodies go their own way. The OECD looks for a stretch of at least two years in which output falls short of its potential by a cumulative 2 percent of GDP. The International Monetary Fund says no official definition exists. A downturn severe enough to cut GDP by around 10 percent, or long enough to last three or four years, tends to be called a depression instead.
Economists also sort slumps by shape. The United States had quick, V-shaped dips in 1954 and 1990 to 1991, a drawn-out U in 1974 to 1975, and double-dip W recessions in 1949 and 1980 to 1982. Japan's late-1990s run, with contraction in 8 of 9 quarters, looked more like an L.
Source: Recession
