What is recession? Here is the official definition

Although some people claim that a decline in GDP for two consecutive quarters constitutes a recession, this is not the official definition in the United States.

US Department of Commerce Reported on July 28 The country’s gross domestic product (GDP) fell at an annual rate of 0.9 percent in the second quarter, the second consecutive quarter of declines.

GDP is generally measured The monetary value of goods and services produced in a country during a given period of time, such as a quarter or a year.

Since then, recent declines have fueled concern that a recession is on the horizon Much On social media A recession is claimed to be defined by two consecutive seasons of negative GDP growth. But The White House says This is not true, writing “this is neither the official definition nor the way economists assess the state of the business cycle.”

Several VERIFY readers have called to ask what a recession is and if there is an official definition.

Question

Is there an official definition of recession?

Sources

Answer

Yes, there is an official definition of a recession — and it’s not two consecutive quarters of declining GDP.

What we found

A committee At the National Bureau of Economic Research (NBER), a nonprofit research organization not affiliated with the federal government, Determines when The US economy is in recession.

It is stagnant Defined by NBER As “a significant slowdown in economic activity spread across the economy that lasted more than a few months.” Organization of many factors including GDP, Real incomeRecruitment, industrial productionAnd Consumer spendingin determining it.

Although people often cite two consecutive quarters of declining GDP as the definition of a recession, and Countries like Great Britain use this nameaccording to America, it is not an “official name” in the United States Bureau of Economic Analysis, An independent and federal statistical agency

Alan Jane, an economics professor at the University of San Diego, told VERIFY that the NBER’s definition is a “better approach” to defining a recession than a decline in GDP alone.

“There are some uncertainties in terms of GDP that make it not necessarily a good measure of the state of the economy,” he said. “For example, there are two big areas that can be distorting. “One is in the field of international trade and the other is in the field of commercial inventories.”

When it comes to international trade, the number of items imported into the United States is a measure that can have both positive and negative implications for the American economy. For example, imports can lead to a decrease in GDP because the United States sends more money abroad. However, if the U.S. imports a lot of goods from other countries, it could actually indicate that the economy is growing and that people have the money to buy imported products, Jain explained.

In the first quarter of the year, the economy, as measured by GDP, shrank by -1.6 percent. “But a large part of it was due to the sharp increase in imports.” And again, this is more a sign of the strength of the US economy than weakness.

According to Jain’s report, businesses that reduce inventory or sell existing inventory while not buying more are also seen as negative for GDP, which contributed to the decline in the second quarter. But it is currently unclear whether this is a positive or negative signal for the strength of the US economy.

So has the US reached the definition of recession? The NBER has not announced one, and it often takes them a long time to do so. Sometimes, according to Jain, a slump is over when the organization declares there is one.

Jain says he doesn’t think the U.S. is in a recession right now, although it could be in the future. But, for now, consumer spending is picking up and industrial production and job growth remain strong, which are positive signs for the economy.

According to the report of the financial institution of the companyDuring a recession, “the demand for goods and services begins to decline rapidly and steadily.” Since producers do not immediately notice this decrease in demand, there is excess supply in the market. All positive economic indicators such as income, production and wages also start to decrease as a result.

At the start of the 2020 Covid-19 pandemic, the United States entered a short-term recession. According to the NBER.

“I think the pandemic was just one thing in life that disrupted the economy,” Jane said. But in the last four years, one area that has been disrupted is the labor market. A large number of people retired early, some people died from the disease or were infected with covid for a long time and therefore are out of the labor market.

As to whether the US is already on its way to fulfilling the definition of another recession, only time – and not social media claims – will tell.

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