Imagine a “u” attached to a slightly (or considerably) higher upside down “u” and you are looking at 2 business cycles. A business cycle includes a peak, a contraction, a trough, and an expansion. Most people think that this recession started during December, 2007 (the top of the first “u”) and ended during July, 2009 (the bottom of the first “u”). However, the definitive word will come from the National Bureau of Economic Research (NBER) and they are not quite sure yet.
The NBER tells us when recessions start and when they end. While primarily, they base their decision on the GDP, other data is considered:
- Real GDP: the dollar value of goods and services produced in the U.S.; measured quarterly by the Bureau of Economic Analysis (BEA).
- Real Personal Income: the amount we earn excluding transfer payments (such as social security, welfare, and other government paychecks that do not pay for a good or service); measured monthly.
- Employment: the percent of the labor force that is unemployed and looking for a job; measured monthly.
- Industrial Production: manufacturing production; measured monthly.
- Sales volume: from manufacturers and retailers; measured monthly.
The Economic Lesson
A recession is the period between a peak and a trough. Thinking back to our “u”, it is the left side, the trip downward. In economic terms, as we travel down the left side of the “u”, the GDP is either growing more slowly or actually diminishing. While most of us say that a recession is defined as two consecutive quarters of declining GDP, the NBER says that the quarters do not have to be next to each other.