“Two consecutive quarters of negative growth”. That’s what you often read what a “technical recession” is. But where did that idea come from?

Economists have been discussing the idea of recession and depression for quite a while, with various proposals being out there. In 1974 the Commissioner of the Bureau of Labor Julius Shiskin wrote an article titled “The Changing Business Cycle” for the New York Times. It was this article, which popularized the “two quarter” definition.

While popular, Mr. Shiskin’s definition is not the only one in use today. In fact, even the US doesn’t use it. (Read below why.) I’ve a separate post discussing what a recession is—enjoy!

Read this historic NYT article here—but note that the transcription is pretty bad.

Why this definition is great

2020 was not a recession

Would you agree that 2020 was a pretty bad year—also economically?

Then you’ll be confused to hear that in the US no recession occured—at least according to the two-quarter definition. Why? Because in about April the US economy stopped shrinking and starting growing again—of course from a much lower point than it had been in February 2020. But it wasn’t two quarters.

In the US, the NBER institute is widely accepted as announcing official recessions-and they thought 2020 saw a recession, too, and said so on their website

in the case of the February 2020 peak in economic activity, the committee concluded that the subsequent drop in activity had been so great and so widely diffused throughout the economy that, even if it proved to be quite brief, the downturn should be classified as a recession.

To have this kind of leeway, NBER uses their own definition of what a recession looks like. Read more here.

Reasons why the two-quarters definition isn’t great

  • In 2020 there was no recession in the US?? Well … see above. — the economy crashed badly but it didn’t ruin growth for two quarters.
  • Did the 70 year jubilee of the Queen of England “save” the UK from a recession? (No, it didn’t. — Statistical quirks around the two quarter definitions.
  • Australia had 28 years of growth … but while the pie grew, the slices became smaller. — GDP grows with population.

Did Mr. Shiskin mess up?

So, did Mr. Shiskin get it wrong?

No, he didn’t. In the NYT article, he did point out exactly those problems. But the “two quarters” definition is just so nice and simple that lots of people keep using it.