The National Bureau of Economic Research (NBER) Business Cycle Dating Committee is a group of economists responsible for maintaining the official chronology of U.S. business cycles. This committee's pronouncements are critical within the field of macroeconomics, as they officially identify the start and end dates of economic expansions and recessions. The committee's work provides a standardized framework for analyzing the cyclical fluctuations in overall economic activity.
History and Origin
The NBER, founded in 1920, began publishing its first business cycle dates in 1929.27 Over time, the organization became the widely accepted arbiter of U.S. business cycle dates. In 1961, the U.S. Department of Commerce further solidified the NBER's role by including its chronology of peaks and troughs in the monthly "Business Cycle Developments" publication.26 The formal establishment of the Business Cycle Dating Committee occurred in 1978, bringing together scholars with expertise in economic fluctuations to take official responsibility for identifying recessions and setting the dates of peaks and troughs.25 This formalized structure ensured a consistent and expert-driven approach to an inherently complex task.
Key Takeaways
- The NBER Business Cycle Dating Committee officially determines the start and end dates of U.S. recessions and expansions.
- Unlike popular rules of thumb, the committee uses a comprehensive set of economic indicators, not just GDP.
- Their declarations are retrospective, meaning they are announced after a peak or trough has occurred and sufficient data are available.
- The committee considers the depth, diffusion (spread across the economy), and duration of economic downturns.
- Their work provides a critical reference for economists, policymakers, and financial analysts.
Interpreting the NBER Business Cycle Dating Committee's Decisions
The NBER Business Cycle Dating Committee's pronouncements are interpreted as the definitive word on U.S. business cycle turning points. When the committee announces a peak in economic activity, it signals the end of an expansion and the beginning of a recession. Conversely, an announced trough marks the end of a recession and the start of a new expansion.24
It's important to understand that the committee's determinations are retrospective. They typically wait until sufficient data are available to avoid significant revisions to the chronology.23 This means their announcements often lag the actual event by several months, or even longer for some past recessions. For instance, the determination of the February 2020 peak in U.S. economic activity was announced in June 2020, and the April 2020 trough was announced in July 2021.21, 22 This lag ensures accuracy and reliability, providing a stable historical record of economic fluctuations for researchers and policymakers. The Federal Reserve, among other institutions, monitors these cycles closely as part of its monetary policy considerations.20
Hypothetical Example
Imagine a scenario where various economic indicators have been showing signs of weakness for several months. Industrial production has declined, nonfarm payroll employment has fallen for three consecutive months, and real personal income has stagnated. Investors and analysts might be debating whether the economy is in a recession. The NBER Business Cycle Dating Committee would be closely monitoring these and other data points, such as real personal consumption expenditures and wholesale-retail sales.
After several more months, once enough definitive data has accumulated and been revised, the committee might convene and announce that a peak in economic activity occurred in a specific month, say, nine months prior. This declaration would officially mark the beginning of a recession, providing clarity to the public and informing economic analysis despite the time lag.
Practical Applications
The work of the NBER Business Cycle Dating Committee has several practical applications across finance and economics. Their dating of business cycles serves as a foundational reference for:
- Economic Research: Researchers use the NBER's chronology to study the causes, characteristics, and consequences of recessions and expansions. This includes analyzing the behavior of various economic indicators during different phases of the cycle.
- Policymaking: Government agencies and central banks, such as the Federal Reserve, utilize the NBER's dates to assess the state of the economy and inform fiscal and monetary policy decisions aimed at stabilizing the economy.19 Understanding the precise timing of downturns helps in formulating appropriate stimulus packages or other interventions.
- Investment Analysis: Financial analysts and investors consult the NBER's business cycle dates to understand historical market behavior during different economic phases. This historical context can inform investment strategies and risk management. For example, certain asset classes may perform differently during periods of economic contraction versus expansion.
- Business Planning: Businesses use the NBER's chronology to gain insights into the broader economic environment when making decisions about hiring, production, and capital expenditures. This helps in anticipating shifts in consumer demand and market conditions.
The committee's reliance on a broad range of data, including real personal income less transfers and nonfarm payroll employment, underscores its comprehensive approach.18
Limitations and Criticisms
While highly respected, the NBER Business Cycle Dating Committee's approach is not without its limitations and criticisms. One primary point of contention is the retrospective nature of their announcements. Because the committee waits for sufficient data and revisions, their declarations often come months after the actual economic turning point.17 This lag can limit the immediate practical utility for real-time decision-making by businesses and individuals. As one analyst noted, the NBER is primarily concerned with describing what happened in the past, meaning they are "not typically very much help" for knowing if the economy is in a recession "today or this week."16
Another common critique arises from the popular "rule of thumb" definition of a recession as two consecutive quarters of negative gross domestic product (GDP) growth.15 The NBER committee, however, emphasizes a more comprehensive definition, considering depth, diffusion, and duration across a wide array of economic indicators beyond just GDP, such as employment, income, and sales.13, 14 This can lead to situations where the public or media might perceive a recession based on GDP figures, while the NBER has not yet made an official declaration, or even determined that a recession has occurred. For example, in 2022, despite two consecutive quarters of negative GDP, the NBER did not declare a recession, citing strong employment figures.12 This discrepancy can sometimes cause confusion regarding the current state of the economic cycle.
NBER Business Cycle Dating Committee vs. "Two Quarters of Negative GDP"
The distinction between the NBER Business Cycle Dating Committee's definition of a recession and the common "two consecutive quarters of negative GDP growth" rule of thumb is significant.
| Feature | NBER Business Cycle Dating Committee | "Two Quarters of Negative GDP" Rule of Thumb |
|---|---|---|
| Definition Basis | A significant decline in economic activity spread across the economy, lasting more than a few months, visible in industrial production, employment, real income, and wholesale-retail sales.11 | Two consecutive calendar quarters of negative growth in real Gross Domestic Product (GDP).10 |
| Indicators Used | Real personal income less transfers, nonfarm payroll employment, employment from household survey, real personal consumption expenditures, manufacturing and trade sales, industrial production.9 | Primarily Gross Domestic Product (GDP). |
| Scope | Emphasizes depth, diffusion (breadth across the economy), and duration.8 | Focuses on a single aggregate measure of output. |
| Official Status | The official arbiter of U.S. business cycle dates. | An informal, widely cited, but not official, indicator. |
| Timing of Call | Retrospective, announced after sufficient data are available and revisions are complete, often months after the actual turning point.6, 7 | Can be identified more quickly, as GDP data is released quarterly. |
Confusion often arises because the two-quarter GDP rule is simpler and more immediate. However, the NBER's approach provides a more holistic and nuanced assessment of the overall economic landscape, acknowledging that a recession impacts various aspects of the economy, not just output.
FAQs
What is the primary role of the NBER Business Cycle Dating Committee?
The primary role of the NBER Business Cycle Dating Committee is to maintain the official chronology of U.S. business cycles by identifying the start and end dates of economic expansions and recessions.5
How does the NBER define a recession?
The NBER defines a recession as a significant decline in economic activity spread across the economy, lasting more than a few months. This decline is typically visible in measures such as real GDP, real income, employment, industrial production, and wholesale-retail sales.4 The committee considers the depth, diffusion, and duration of the downturn.
Why does the NBER's recession announcement often lag the actual event?
The NBER's announcements lag the actual event because the committee waits until sufficient data are available and have been revised to ensure accuracy and avoid frequent changes to their chronology.2, 3 This retrospective approach provides a more reliable historical record.
Is two quarters of negative GDP growth officially considered a recession by the NBER?
No, while two quarters of negative GDP growth is a common rule of thumb, it is not the NBER's official definition of a recession. The NBER uses a broader set of indicators and considers the depth, diffusion, and duration of economic activity.1
Who are the members of the NBER Business Cycle Dating Committee?
The NBER Business Cycle Dating Committee is composed of a group of distinguished economists with expertise in macroeconomics and business cycles. Their specific composition can change over time.