Calling a Recession: How Long Does It Take?
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A sign points to new homes in Hesperia, California on August 18, 2022. The U.S. is not in a recession yet, officially.
Is the U.S. in a recession? And if so, when will we know?
One possible answer to that question is that the country is already in a recession. The economy has just seen two quarters of contraction—negative GDP growth, in economic parlance—that many countries and economists take as the signal for a recession.
However, the U.S. government has a different approach. According to the government, the U.S. is in a recession when the National Bureau for Economic Research (NBER) says it is.
More specifically, a recession is officially declared when the Business Cycle Dating Committee of the NBER announces it. And in some cases, the recession is over before it's even been declared as having begun.
The problem is that, unlike the GDP measure which, although imperfect, is declared the moment the data is published, the NBER takes its time. For the last six recessions, on average, the announcement of when a recession started is 234 days after the GDP data is announced.
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In some cases it was far longer: for the recession caused by the 2008 financial crisis, the announcement was 366 days later—a whole year.
The NBER also determines the end of recessions, and this takes even longer. Calling the end of recessions has in all but one of the last six cases taken more than a year.
The gap in calling the start of recessions has led to the situation where some recessions are announced as having begun once they are, as it eventually turns out, already over. For example, the last recession was declared on June 8, 2020 as having started in February 2020. However, in July 2021, it was declared as having been over in April 2020—two months before it was said to have begun.
That COVID-induced recession was a short, very sharp economic shock, so the time delay is understandable. There are other examples though. In 2001, the NBER declared in November the start of a recession earlier that year, but as it turned out, November 2001 was the month it also ended.
Equally, according to the NBER, the 1990-91 recession ended in March 1991, but it wasn't even declared to have begun until the announcement in April of that year. These examples can be seen on the chart where the red dot is to the right of the second grey dot (that marks the end of the recession).
As the chart shows, the time between a recession starting and its announcement is always shorter than the gap between the announcement of a recession being over and its end date.
The end of a recession is a less politically contentious issue. Declaring one as being underway is far more sensitive, and also as many economists have pointed out, can be somewhat self-fulfilling.
Calling the start of a recession has never been done in less than 100 days. While this might seem cautious, the NBER points out that it has a lot of different (and often contradictory) data points to assess.
That caution was spelled out in the NBER memo of January 7, 2008:
The committee's approach to determining the dates of turning points is retrospective. We wait until sufficient data are available to avoid the need for major revisions. In particular, in determining the date of a peak in activity, and thus the onset of recession, we wait until we are confident that, even in the event that activity begins to rise again immediately, it has declined enough to meet the criterion of depth. As a result, we tend to wait to identify a peak until many months after it actually occurs.
So when can we expect to know if the U.S. was in recession in 2022? Given the most recent declaration took 128 days, it's possible that it might come before 2023.
Or perhaps not at all. As economic research firm Capital Economics said in a recent note, "The risks of a recession over the coming months are still low, but the impact of higher energy prices and interest rates means real economic growth will be consistently below its 2 percent potential pace over the next couple of years." In other words, the economy will slow, yes, but not necessarily to the point of a recession.
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