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Monday, June 02, 2008

Bob Brinker and NBER Recession Definitions

Last weekend Bob Brinker said there has never been a recession without two quarters of negative GDP growth.
  • In order to have a recessionary report, you would need a negative number followed by another negative number in the next quarter. So you would need two consecutive quarters, using the historic, the traditional, the academic definition of a recession that’s been used of decades."
    From Summary: Bob Brinker's Moneytalk, May 31, 2008
Bob Brinker sometimes makes up his own defintions so what he said in the past can be correct. His definition for a recession seems to be no different.

I decided to check with the National Bureau of Economic Research, NBER or "the horse's mouth," to see what their "official" definition of a recession is.

From About NBER website:

  • "Founded in 1920, the National Bureau of Economic Research is a private, nonprofit, nonpartisan research organization dedicated to promoting a greater understanding of how the economy works. The NBER is committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community."
    The NBER is the nation's leading nonprofit economic research organization. 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 researchers at the NBER. The more than 1,000 professors of economics and business now teaching at universities around the country who are NBER researchers are the leading scholars in their fields.
So NBER clearly is THE organization that DEFINES recessions for the academic community.

Recession Comments From NBER:
  • Defintion: 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-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.
    From The NBER’s Recession Dating Procedure

  • "Although a recession is usually accompanied by a decline in GDP, the popular press definition of "two quarters of declining GDP" is not the official standard."
    From "Looking for Signs of Recession?" By Martin and Kathleen Feldstein

  • "Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER's recession dating procedure?
    A: Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. According to current data for 2001, the present recession falls into the general pattern, with three consecutive quarters of decline. Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, "a significant decline in economic activity." Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology.
    From The NBER’s Recession Dating Procedure Q&A Section

Conclusion: Bob Brinker continues to have a VERY entertaining radio show that gives us good ideas to think about but you can not take his word for the truth for even the most basic of things like the "academic definition" of a recession.


  1. "your 3 June post does not have a comment link"

    "where are those millions of lost jobs"

    The birth/death module (not real jobs a module) ADDED 1.8M jobs for Feb-Apr.

    Not to mention when unemployment benefits expire you are no longer are counted.

  2. Thanks for the compliment. As for comment links, I forgot to turn it off here. Due to a few troublemakers, I moved all comments for my articles to the Bob Brinker Discussion forum on Facebook's Investing for the Long Term group.


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