With the funds rate driven to levels far below its target, the FOMC had no recourse but to adjust the target accordingly.Recessions

Kristie M. Engemann

Michael T. Owyang

English

Research Papers in Economics

Economic SYNOPSES
short essays and reports on the economic issues of the day
2010 ■ Number 38
T
he textbook definition of recession is two or more
quarters of declining real gross domestic product
(GDP). Though somewhat narrow, the definition
is precise. The National Bureau of Economic Research’s
(NBER) Business Cycle Dating Committee (BCDC), how-
ever, uses this more-encompassing, if less-precise, defini-
tion: a period of at least a few months when “a significant
decline in economic activity spreads across the economy.”
A recession occurs between a business cycle peak and
trough. To identify these business cycle turning points, the
BCDC examines a variety of economic indicators, includ-
ing real GDP and employment.1
The chart shows real GDP growth
(top panel) and payroll employment
growth (bottom panel) for recessions
since 1949. His  torically, these two indi-
cators have tended to peak around the
same time, with real GDP reaching a
subsequent trough a little sooner 
than employment. For the recessions
between 1949 and 1982, one quarter
after the end of recession, average real
GDP growth (top panel, black line)
was strong, while average employment
growth (bottom panel, black line) was
positive but very weak; two quarters
after, however, employment growth
became relatively strong. Entering the
1990-91 and 2001 recessions, average
real GDP growth (dotted line, top
panel) and average employment growth
(dotted line, bottom panel) peaked
around the same time. After these
recessions, however, the employment
trough lagged the real GDP trough
(and the official NBER trough) by many
more months than it had historically—
a phenomenon commonly called a
“jobless recovery.” Employment growth
remained negative, on average, for the
first three quarters and was minimal the next three quar-
ters. Since the most recent recession, employment growth
(bottom panel, blue line) has followed the “jobless” pattern
rather than the historical pattern, excluding the positive
growth in the third and fourth post-recession quarters
(which was partly from the increase in temporary Census
workers in early 2010). 
For the pre-1990 recessions, the peak and trough dates
of the major economic indicators were close. For the reces-
sions since 1990, though, it appears the BCDC placed more
weight on output variables than employment when deter-
When Do Recessions Begin and End?
Kristie M. Engemann, Senior Research Associate
Michael T. Owyang, Research Officer and Economist
10
8
6
4
2
0
–2
–4
–6
–8
6
4
2
0
–2
–4
–6
–8
Percent
Percent Payroll Employment
Real GDP
–6 –5 –4 –3 –2 –1
Business Cycle
Peak
1 2 123 4 5 6
Business Cycle
Trough
–2 –1
–6 –5 –4 –3 –2 –1 1 2 123 4 5 6 –2 –1
Quarter, Pre-Recession Quarter, Post-Recession
Quarter, Pre-Recession Quarter, Post-Recession
Avg. of Recessions, 1949-82 Avg. of Recessions, 1990-2001 Recent Recession
Business Cycle
Peak
Business Cycle
Trough
NOTE: Annualized growth rates. Vertical lines indicate business cycle turning points. The two 
recessions in the early 1980s were counted as one.
SOURCE: Bureau of Economic Analysis (real GDP, seasonally adjusted annual rate); Bureau of Labor 
Statistics (nonfarm payroll employment, seasonally adjusted); and NBER (business cycle turning 
points). mining the official end dates of these recessions. If, instead,
the BCDC had placed more weight on employment than
output, the official end dates would have been much later.
For example, the BCDC declared December 2007 as
the beginning of a recession, noting that several indicators
had peaked around then but that GDP and real gross
domestic income growth were more ambiguous. None  the  -
less, the BCDC chose December 2007 because that date
coincided with the clear peak of payroll employment. The
BCDC declared June 2009 as the end of the recession, not-
ing that, although employment did not hit a trough until
December 2009, most other indicators (namely, the main
monthly output measures) had hit a trough in June.2 This
example demonstrates the asymmetric predictive content
of employment dynamics for identifying peaks and troughs
in the business cycle, suggesting perhaps that employment
dynamics are given more weight in identifying peaks and
less weight in identifying troughs. ■
1 The BCDC also examines real income, real sales, industrial production, and
other economic indicators; details about the BCDC’s methods are available on
the NBER website (www.nber.org/cycles/recessions.html).
2 See the December 1, 2008, and the September 20, 2010, BCDC announcements
for details on the turning point decisions (www.nber.org/cycles/main.html).
Economic SYNOPSES Federal Reserve Bank of St. Louis      2
research.stlouisfed.org
Posted on December 28, 2010
Views expressed do not necessarily reflect official positions of the Federal Reserve System.
The end dates of recessions have
matched GDP troughs more closely
than employment troughs.

When do recessions begin and end?

http://research.stlouisfed.org/publications/es/10/ES1038.pdf

When do recessions begin and end?

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