I’m sure they have a formula of some kind, but it’s a hell of a lot more complicated than “two consecutive quarters of contracting GDP” rule of thumb that that the liar-liar-pants-on-fire crowd routinely misrepresents as a hard and fast requirement.

There really isn’t. The NBER pretty much sits a bunch of economists in a circle and asks what each of them thinks. They have an official definition, but a new one is tossed out every few years — the most recent, oft-cited one is both vague and less than five years old! — so it’s not exactly hard to be manipulated regularly.

I’m an economic libertarian; in my experience there are very few situations where having the government jump into action too late or not at all was more deadly than having the government jump into action too early. Those times where intervention is important, the necessary emphasis is more related to dealing with fraud or similar concerns rather than anything involving monetary policy.

Because of that logic, I prefer to stick with quarter-based information. In extreme cases, six-month ranges with only one full quarter known well probably work well enough, but those also tend to be situations where we already know that something is wrong and thus the question of a recession is probably academic at best. If the information is reasonably reliable, even in more moderate cases it’d make sense to call it. That said, there’s not that much in the way of reliable information; even official numbers consistently end up being revised upwards.

I prefer the 6 months GDP value, but I’m by no means married to it; I just like having a known and less volatile concept, rather than letting the NBER pick whatever they thing is the best option. The official NBER definition is, at least as of today, 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.”

I’ll take the word “more than a few” to mean “more than three”, and for “significant decline” to mean actual negative values (ie: going from a N% growth in GDP to a N%/2 growth is not a significant decline in real GDP, while going from -N% to -N%/2 change in GDP still is a significant decline, assuming N is positive). “And” means “all of”.

At least for now, I’m not sure we’re at that. Retail sales grew, albeit minimally and in less-than-real terms, as recently as June.

Assume for argument’s sake that the two quarter rule of thumb really should be the proper measure of what is or isn’t a recession. Right now we know there was negative growth in 4Q of last year. We don’t know if there was positive or negative growth in 1Q of this year. A few months from now, we should. If it turns out 1Q was negative, there’s your two-quarter recession. But it wouldn’t mean we are in recession at the time we learned about it (e.g., October), nor even that we are in one now. All it would mean is that there was a recession, which began sometime around 9/1/07 and ended sometime around 3/31/08, give or take a couple months in either direction.

Sometimes we don’t even learn that quickly. The 1990-91 recession ended in March of 1991, but we didn’t know that until December of 1992.

So after you have the two consecutive quarters, is the recession considered to have started at the beginning of the first quarter?

But my point of view isn’t indicative of the economy as a whole, and it would hardly be reasonable for me to say that the US is in a recession just because my particular sector of the economy is doing badly. The last time that the economy really was in a recession (2001), the construction industry just flat skipped it; building kept going on, and from my point of view, things were booming.

If the terms of a recession is two quarters of negative growth, then that would be it for me. But remember, I couldn’t tell the difference between a Mutual Fund and Cottage Cheese.