What’s In a Name?

It seems that if you aren’t happy with something, you can attempt to simply redefine it. Take the dreaded word “recession” for example. Per the textbooks I studied and with the guidance of my excellent professors, I have always stuck to the basic definition – two consecutive quarters of negative real Gross Domestic Product (GDP). The nuances of labeling the stages of a business cycle, however, are not quite that simple.

Recessions have been identified since the 1980s by the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER). This is a surprisingly small group of (only eight) economists that identify economic peaks and troughs to distinguish where the economy stood, typically several months after the fact, in the business cycle. Their closed-door sessions are held in nearby Cambridge, MA with a meeting schedule that is unavailable to outsiders, including the press. It is hard to recall another time in history when we have paid as close attention to their detailed definition of “recession” as we do now.

Apparently, when a play is as close as this one, we need to go under the (NFL-style replay) hood and really get into the weeds of the playbook. Will we be looking next for an “economic move” (similar to the NFL version of a “football move”) creating forward momentum through the down marker, with respect to the state of employment, industrial production, household income and wholesale-retail sales data? Each of these factors is considered by the NBER when identifying a period of recession, and each has expanded since the start of the year, contrary to the direction of these metrics in prior recessions. Much like a fan’s view of decisions made by an NFL referee crew, which team you are rooting for may sway agreement with the nuanced label of a first down, or economic slowdown.