00:00 Speaker A
Well, tariff uncertainty has fueled recession fears and this week’s Q1 GDP reading of negative growth put the possibility into focus. So what actually defines a recession? Here to break it down our senior reporter, Ali Canal. Hey Ali.
00:14 Ali
Hey Maddie. Yes, the common held belief is that two quarters of negative GDP growth signals a recession. But that’s not always the case. The official call actually belongs to the National Bureau of Economic Research, otherwise known as the NBER. This is a non-government entity tasked with identifying recessions. But here’s the catch. They don’t predict them, rather their job is to confirm them following months and months of quote unquote hard and often revised economic data. That means we often don’t know we’re in a recession until it’s already underway or sometimes even over. But here’s what the NBER looks at to make the call because it’s more than just GDP. They analyze a wide range of indicators including employment, personal income, industrial production, and real business sales. And they also weigh the 3Ds, depth, diffusion and duration. Take the COVID recession for example. It only lasted two months, but it was the deepest and most widespread drop in modern history, particularly when it comes to the unemployment rate. That was enough for the NBER to call it, even though it was historically short. On the flip side, the US economy technically avoided a recession in 2022 and this came despite two negative quarters of GDP along with a dramatic drop in the stock market. But the rest of the data didn’t back that up. In fact, one of those GDP readings was later revised slightly upward, meaning it was no longer negative and unemployment didn’t budge. Instead, it fell so job growth stayed strong. That’s why economists caution against fixating on GDP alone. It’s also a good reminder that not every market meltdown equals a recession. That’s actually not something that NBER even considers in their decision. Economists told me that if you want to focus on just one indicator, the unemployment rate might be your best bet, but even that isn’t foolproof. Bottom line, we may be feeling a little nervous, but officially, we’re not in a recession yet and if one is coming, we likely won’t know until it’s already behind us.