Improving our definition of economic recession

The technical definition of an economic recession is a fall in the level of real national output (GDP) over a period of two consecutive quarters (at least 6 months). But an economic recession might bedefined more broadly and consider a range of indicators other than real national output.

In the United States, the NBER uses a broader range of indicators than simply real GDP to define a recession because real GDP is not always a good indicator of economic activity. For example, real GDP can decline even if there is no recession if there is a negative supply shock, such as a natural disaster.

The NBER also uses other indicators, such as employment, industrial production, and wholesale-retail sales, to define a recession because these indicators are more likely to be affected by a decline in economic activity.

Here are some of the reasons why it makes sense to use a broader range of indicators than simply real GDP to define a recession:

• Real GDP is not always a good indicator of economic activity. For example, real GDP can decline even if there is no recession if there is a negative supply shock, such as a natural disaster.
• Other indicators, such as employment, industrial production, and wholesale-retail sales, are more likely to be affected by a decline in economic activity. This is because these indicators are more closely related to the production of goods and services, which is the main driver of economic activity.
• Using a broader range of indicators gives a more complete picture of the economy. This is important because the NBER's definition of a recession is used to make decisions about economic policy, such as whether to implement fiscal stimulus or monetary policy.