What Is a Recession?

One reason that economists can differ sharply over whether the U.S. is in a "recession" is that there is no simple, numerical definition of the term. Herbert Stein, chairman of the Council of Economic Advisers, offers a qualitative description: "An extended, substantial and widespread decline in aggregate economic activity, but one less severe than earlier 'depressions.' " The job of determining just which downturns belong in that category has fallen to the National Bureau of Economic Research, whose word on the subject is practically law in the profession.

The NBER has classified five post-World War II business contractions as recessions. No single standard determines that judgment, but the five drops do have some common denominators. Each lasted at least nine months, during which real G.N.P. fell at least 1.5% and industrial production dropped a minimum of 8.1%. Also, the jobless rate rose at least 2.3 percentage points, to 6.1 % or more, and employment declined in more than 80% of the 30 major non-farm industries that NBER statisticians watch closely.

So far, the current downturn has lasted roughly three months, and no figures are yet available on what has happened to real G.N.P.Industrial production has dropped 1.4%, the jobless rate has risen six-tenths of a percentage point, to 5.2%, and employment has declined in about 20% of the nonfarm industries. So, by NBER standards, the U.S.is not yet in a recession--though it could enter one later.

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