By Ellen Simon
NEW YORK - A recession isn't officially a recession until the National Bureau of Economic Research says it is.
You don't have to wait for them, though. The nonpartisan group often doesn't declare a recession until after it's over - but when unemployment is high as incomes fall, you may know it's a recession long before any economic brain trust has made it official.
Take, say, most of this year. If it has felt like a recession to you, you're not alone.
Alan Greenspan, a former Federal Reserve chairman, said after Bear Stearns collapsed in March that "the current financial crisis in the U.S. is likely to be judged as the most wrenching" since the end of World War II. And Harvard professor Martin Feldstein, former head of the National Bureau of Economic Research, said that month he believed the country was in a recession that could be severe.
Here are some questions and answers about how a recession is declared:
Q: Who decides when a recession has begun?
A: The National Bureau of Economic Research, a private, nonprofit research organization, is the arbiter of recessions.
The group, founded in 1920, has more than 1,000 university professors and researchers who act as bureau associates, studying how the economy works. Sixteen of the 31 American Nobel Prize winners in economics and six of the past chairmen of the president's Council of Economic Advisers have been NBER researchers.
The group's Business Cycle Dating Committee makes the call on recessions. The small committee - recently it had only seven members - comprises experts on the economic peaks and valleys that comprise expansions and recessions.
Q: What qualifies as a recession for the NBER?
A: The NBER's definition of a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and wholesale and retail trade.
GDP - short for gross domestic product - measures the value of all goods and services produced in the United States.
Recession dates are based high and low points within the nation's "business cycle" - periods of economic growth and contraction. A recession begins when the economy peaks at the top of an expansion period. It continues as the economy contracts until it hits the "trough," the lowest point in the downward cycle. After that, the economy begins to recover. The "peak" date is the beginning of a recession and the "trough" date is its end.
The last official recession began in March 2001, lasted eight months and ended November 2001. Previously, the economy had expanded for 10 years.
The NBER often doesn't make its recession calls quickly because its Business Cycle Dating Committee waits for the most accurate revised data - which can take a year or more to calculate. The committee didn't announce the March 2001 peak and the onset of the last recession until November 26, 2001 - the month that recession ended. It didn't announce the November 2001 trough until July 16, 2003, more than a year and a half after it was over.
Q: How does the NBER determine the ups and downs?
A: The NBER views real gross domestic product as the best measure of economic activity, but it uses many other indicators, since GDP is subject to considerable (and time-consuming) revision.
The classic definition of a recession is two quarters in a row of declining GDP. But not every recession fits that description. Sometimes waiting for the most accurate GDP numbers would mean waiting for years.
That's why the NBER also examines monthly indicators, especially real personal income, employment, industrial production and retail and wholesale sales volume - with no fixed formula for how each indicator is weighted.
Q: As the recession may be over by the time it's declared, why bother with dates?
A: If the official recession call seems academic, it often is. But by officially calling recessions, the NBER helps policymakers, economists and historians chart the past and find patterns in the downturns we've already experienced.
Originally published by Ellen Simon Associated Press .
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