What Is a Recession and Are We in One Now? As the stock market declines and the Fed hikes rates, recession fears are rising. Here’s what to know. By Josh Mitchell The Wall Street Journal MichaelJBerlin ©/Adobe Stock
With inflation high, the Fed raising interest rates, stock markets in bear territory and growing concerns over stagflation, “recession” is yet another economic worry to add to the list. The specter of a recession is looming over economists and chief executives. “For many countries, recession will be hard to avoid,” World Bank President David Malpass said in early June. Though recessions can be painful and scary, they are a natural feature of the economy. Don’t panic. Here’s what you should know.
household income, consumer spending, retail sales and industrial production. The panel considers those figures in tandem. No one figure necessarily stands above the others, said Stanford University’s Bob Hall, the Business Cycle Dating Committee’s chairman. Mr. Hall said the committee generally knows a recession when it sees one. Most typically include sharp drops in output and employment. The tough part is determining just when it started and ended—a task the committee carries out ever so carefully. That’s why the committee waits a while to identify the dates; it wants all possible data to have been collected and finalized. “Every time when we ultimately called a recession, there wasn’t any doubt,” Mr. Hall said.
Due to limited rights, this story is only available in the print issue of the Salt What is a recession? There’s no precise definition. the taskmagazine. of Lake Instead, Realtor A copy of this identifying recessions is left to a little-known panel at Is two consecutive quarters of falling GDP a available Wall Street the National Bureauarticle of Economicis Research, a nonprofit on the recession? academic group. A recession is “a significant decline in No. Journal website but charges may apply. economic activity that is spread across the economy and that lasts more than a few months,” NBER said on its website. Even that definition is loose because NBER ultimately declared the 2020 downturn at the start of the Covid-19 pandemic a recession even though it lasted only a few months. Recession dates are determined by NBER’s Business Cycle Dating Committee, consisting of eight economists at universities around the U.S. They typically make the determination months or even years after a recession ends. Think of the panel as a coroner performing an autopsy—it doesn’t make assessments in real time but instead sifts through data to retroactively determine when expansions end and recessions begin. The NBER has identified 12 recessions dating back to 1948, or one approximately every six years.
What criteria does the committee use? The committee examines a range of economic data including gross domestic product, employment, 24 | Salt Lake Realtor ® | July 2022
That’s a rule of thumb that sometimes appears in news articles and, according to the International Monetary Fund, is used by many analysts and commentators around the globe. But, in the U.S., it has no bearing on the committee, Mr. Hall said. The pandemic-induced downturn lasted just a few months but certainly qualified as a recession in the committee’s eyes because of its severity, he said. Alternatively, a modest decline in output over six months would likely not meet the panel’s definition because the panel only considers “significant” declines in economic activity. “That’s not anything close to the philosophy the committee brings to identifying it,” Mr. Hall said of the rule of thumb. “It really doesn’t make any sense.”
How deep and long are recessions? That varies. Recessions are like snowflakes—no two are exactly alike. The recession that began in 2007 after the housing crash lasted a year and a half. The pandemic-induced
