Defining Recession, now that’s it’s apparently over
According to Washington and some recent economic data, the recession has come to an end. The lack of presents that will be under my Christmas tree this year are reason enough to debate that statement, but it should be realized that ending a recession and ending “difficult times” are not the same thing.
The actual definition of recession varies depending on whom is asked. Many people assume it to mean the decline of GDP for two or more quarters.1 A more general but accepted definition is:
“A recession, as defined by the Business-Cycle Dating Committee of the National Bureau of Economic Research (The Committee), is ‘a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.’”2
Yeah, I know, that doesn’t tell you much more than you already knew, which is basically that a recession is another word for “bad economic times.” Where it DOES help you, however, is that when the finance guy at your cocktail party is adamantly arguing about the exact time this recession started or ended, you can point out the subjective and vague nature of the term itself and suggest he chill out a little.
Regardless of whose definition you use, determining a recession’s length is always done in hindsight since the numbers for which to base the designation are only available after the fact. So you might not have known it, but we have been climbing out of this recession the entire third quarter of the year (allegedly). Don’t you feel foolish for saving all that money now? Somehow, despite what the numbers indicate, I have a feeling many of us will still keep our spending habits a little in check now.
It should be noted that whether you want to define this current economic time as a slow recovery or an ongoing recession, it is certainly not a depression. A depression would be a decline of real GDP by more than 10% (according to some general definitions). We’re talking severe deflation and massive unemployment. While the numbers haven’t been great the past couple years, they never reached such levels of deflation and figure to be on the upswing according to the latest 3Q data.
Read on:
Yahoo! News – Economy grows in 3Q, signals end of recession
About.com – Recession? Depression? What’s the difference?
- For information on GDP, look back to our February 2009 post on Gross Domestic Product. ↩
- http://www.businessandmedia.org/commentary/2008/20080123144413.aspx ↩
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