«Here’s the Definition.»

Traders,

With all the talk of an economic slowdown swirling around the airwaves, it’s worth taking some time to define the exact definition of a recession.

The shortcut definition is usually two consecutive quarters of negative GDP growth, as measured by the Bureau of Economic Analysis (BEA). But it’s a little more nuanced than that, partly because the National Bureau of Economic Research (NBER) is in charge of identifying and dating recessions. Their recession definition is a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.” Though they look at a wide array of data, the factors of particular importance are income, employment, personal consumption, and industrial production.

To lay to rest any doubt, the BEA has clearly stated that the NBER has the power. To wit:

…While gross domestic product (GDP) is the broadest measure of economic activity, the often-cited identification of a recession with two consecutive quarters of negative GDP growth is not an official designation. The designation of a recession is the province of a committee of experts at the National Bureau of Economic Research (NBER), a private non-profit research organization that focuses on understanding the U.S. economy…

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Chart of the Day: The Recovery

Here are the forward returns after the S&P 500 falls 20%.

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