When Will This Officially Be Called A Recession?

Key Takeaways

• Two consecutive quarters of negative GDP growth are typically used as a shorthand definition for a recession.
• The National Bureau of Economic Research (NBER), the entity responsible for declaring recessions, uses several factors to determine when there is a recession.
• Measures such as real personal income and unemployment rates are critical in deciding whether we are in a recession.

The average recession historically lasts about 17 months, according to NBER data. Although the NBER has yet to formally declare a recession, it feels like people have been talking about one for at least 17 months now.

Those discussions grew legs this past summer when we learned that the U.S. had officially experienced two consecutive quarters of negative GDP growth.

While negative GDP growth can coincide with a recession, an official declaration is much more complex than any one metric. Instead, a recession relies on the summation of many economic indicators that show how the economy is doing. To know when this downturn will officially be declared a recession, we must understand what a recession actually means.

What is a Recession?

A recession is a period of significant economic decline lasting more than a few months, according to the NBER. However, the bureau relies on more than just one measure to make that call, such as GDP growth. Instead, it looks at the economy as a whole, weighing factors such as real personal income (RPI), employment, consumption, retail sales, and production.

The NBER also says there is “no fixed rule about what measures contribute information to the process or how they are weighted in our decisions.” In other words, every set of economic conditions is different, and there is no specific threshold that must be met before a recession is declared.

However, the NBER does say that in recent decades, the two factors it has weighted the most heavily have been RPI and employment. This is perhaps why the bureau officially declared a recession between the months of February 2020 and April 2020. By April 2020, the unemployment rate had reached 14.7%. Fortunately, unemployment dropped sharply after that, and we have yet to enter a recession since.

To be sure, there have been other causes for concern since then. Negative GDP growth and soaring inflation have shaken many people’s confidence in the economy. But these are not among the main factors the NBER uses in its decision of whether or not to declare a recession.

When will a recession be official?

We can’t be certain that the current economic conditions will result in an official recession. Still, it is inevitable that a recession will be declared at some point in the future.

For one, the unemployment rate has remained low — 3.7% as of August 2022. And RPI, defined as earnings after accounting for inflation, has risen steadily for the past several years. The pandemic did cause some volatility in RPI, but that settled down in the summer of 2021. Since then, it has remained stable. On average, RPI has increased over the past five years.

Because the NBER uses many factors in coming to a decision, we can’t say for sure when — or if — the current economic conditions will constitute a recession. Some economists do expect a recession; one survey of economists found that 68% believe a recession will hit in 2023.

But even if a recession does begin in 2023, it’s unlikely we will know anything official for quite a while. The NBER is not always timely in issuing these reports. It didn’t release its report on the COVID-19 recession until July 2021, for example. We can even go back to the Great Recession, which the NBER didn’t announce until September 2010.

How Long Do Recessions Last?

Gauging the typical length of a recession is slightly easier. As mentioned earlier, the average recession from 1854 to the present has spanned 17 months. However, in the years leading up to the Great Depression, the average recession had a length of over 21 months. Since World War II, they’ve lasted just over 10 months on average.

Still, there have been plenty of outliers. The COVID-19 recession was the shortest U.S. recession on record, lasting just two months. In the years after the Civil War, there was a recession that lasted 65 painstaking months. The Great Depression endured for 43 months.

Bottom Line

Talk about a possible recession has been top of mind for quite some time now. Those talks only heated up when the U.S. marked two consecutive quarters of negative GDP growth. But the NBER, which declares recessions, prefers measures such as real income and unemployment rates.

Thus, the NBER has yet to declare a recession since the COVID-19 recession of 2020. While some economists predict a recession in 2023, whether the NBER will declare it is pure speculation. The bureau is usually quite delayed in declaring recessions, too, so it may be quite a while before we learn of an official decision. And modern recessions tend to run shorter, closer to 10 months than the historical averages that run 17-20 months long.

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