View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

short essays and reports on the economic issues of the day
2002 ■ Number 20

Was the Recent Economic Downturn a Recession?
Jeremy M. Piger
ate last year, the National Bureau of Economic
the magnitudes of the declines are similar to those observed
in several past recessions and lasted for 13 and 18 months,
Research (NBER) announced that the U.S. economy
respectively, longer than the average of the previous recesentered a recession in March 2001. Some have quessions. The employment decline is of particular interest, as
tioned whether the recent downturn really qualifies as a
the NBER gives extra emphasis to employment movements
recession, as by some measures it has been quite mild. For
in determining recession dates. The decline in sales during
example, the broadest measure of the economy’s output, real
the current recession has been notably mild relative to pregross domestic product (GDP), experienced only a modest
vious recessions, dropping less than half as much as in the
decline in the current recession. However, given that more
1990-91 recession. Nevertheless, such a protracted sales
timely measures of economic activity are available, the NBER
decline has never occurred within any expansion. In the
gives relatively little weight to GDP in determining recession
sample period considered here, there have been only three
dates. Instead, the NBER defines a recession as a “signifimonths not related to an NBER recession in which sales
cant decline in activity spread across the economy, lasting
had declined 2.4 percent below their prior peak, the level
more than a few months, visible in industrial production,
reached in the current recession. In all three cases these
employment, real income, and wholesale-retail sales.”1 To
episodes lasted just one month, with sales bouncing back
investigate whether the recent economic downturn meets
above their peak in the following month. By contrast, sales
this definition, I use past recessions as a yardstick.
in the current recession remained below their peak for 10
The table details the significance and length of decline
consecutive months before the trough was reached, suggestin the four variables included in the NBER recession defiing the recent sales data have more in common with past
nition for each recession over the past 40 years. Significance
recessions than past expansions. Finally, as in the 1960-61
is measured by the percentage decline in each variable from
and 1969-70 recessions, personal income experienced no
its individual peak to its individual trough. This is computed
fall during the current recession.
by finding the lowest point each variable reached during
recent economic downturn a recession? This
or a year following the recession (called the trough) and
evidence suggests that, when compared with past recessions,
subtracting this value from the highest point the variable
downturn does measure up. ■
reached in the past (called the peak). Beside this statistic,
NBER’s business-cycle dating procedure, June 7, 2002.
in parentheses, is the time in months between individual
peak and trough for each
series, a measure of the
length of the decline. The
Peak-to-Trough Decline in Each Recession: Percent (months)
statistics for the current
recession assume the
troughs have been reached
Total employment
–2.3 (10)
–1.5 (8)
–2.9 (6)
–1.5 (4)
–3.1 (16) –1.6 (20)
–1.4 (13)
for all of these variables.
Industrial production
–9.1 (11)
–7.3 (13) –16.1 (16)
–7.3 (13) –10.9 (17) –5.3 (23)
–7.4 (18)
The table shows that
Real manufacturing and
–5.8 (13) –13.8 (16)
–8.8 (15) –10.2 (12) –5.2 (5)
–2.4* (10)
trade sales
both employment and
Real personal income
–1.37 (2)
–1.0 (2)
–5.9 (17)
–2.8 (7)
–1.7 (14) –2.6 (7)
–0.9 (1)
industrial production
have experienced signifiNOTE: *The maximum decline in sales was actually 4.2 percent, reached in September 2001. However, this reflected
cant and lengthy declines
the September 11 terrorist attacks and was largely erased the following month. Thus, I report the second largest decline.
in the current recession;


Views expressed do not necessarily reflect official positions of the Federal Reserve System.