What is a recession, and who decides when one starts?

A recession is a significant decline in economic activity that spreads across the economy and lasts more than a few months. In the United States, a committee of economists at the National Bureau of Economic Research (NBER) decides when recessions start and end, and it usually announces those dates well after the fact.

Recessions matter for household budgets because they tend to bring job losses, slower hiring and tighter finances. Knowing how a recession is defined, and which signals economists watch, can help you read economic headlines with a clearer eye.

Key takeaways

• A recession is a significant, widespread decline in economic activity that lasts more than a few months.
• The NBER’s Business Cycle Dating Committee sets the official US start and end dates, often many months later.
• Two straight quarters of falling GDP is a popular rule of thumb, not the official US test.
• The committee looks at jobs, income, spending, sales and production, not GDP alone.

What a recession is

Depth, diffusion and duration

The NBER defines a recession as a significant decline in economic activity that is spread across the economy and lasts more than a few months. Its Business Cycle Dating Committee judges each downturn on three criteria:

• Depth: how far economic activity falls.
• Diffusion: how widely the decline spreads across the economy, rather than staying in one sector.
• Duration: how long the decline lasts.

Each criterion has to be met to some degree, but a very strong reading on one can partly make up for a weaker reading on another. The 2020 downturn is the clearest example. The drop in activity was so large and so widespread that the committee classified it as a recession even though it lasted only two months, from a February 2020 peak to an April 2020 trough.

Peaks, troughs and the business cycle

Economists describe the economy as moving through a business cycle. An expansion is a period when economic activity is growing. A recession is a period when it’s contracting. The turning points have names:

• Peak: the month when activity reaches its high point before a significant decline. The NBER counts the peak month as the last month of the expansion.
• Trough: the month when activity hits its low point and starts to rise again. The trough month is the last month of the recession.

Expansion is the economy’s normal state, and most recessions are brief. Based on the NBER’s dates, US recessions since 1945 have lasted about 10 months on average, while expansions have averaged about 64 months. The 2007–2009 recession lasted 18 months, from a December 2007 peak to a June 2009 trough.

The end of a recession doesn’t mean the economy has fully recovered. It means activity has stopped falling and started to grow again. After the June 2009 trough, for example, nonfarm payroll employment didn’t return to its previous peak until May 2014.

Who decides when a recession starts

The NBER’s Business Cycle Dating Committee

The NBER is a private, nonprofit and nonpartisan research organization founded in 1920. Its Business Cycle Dating Committee, set up in its current form in 1978, keeps the chronology of US business cycles. Members are economists who study macroeconomics and business cycles, and they’re appointed by the NBER’s president. Valerie Ramey became chair in 2024, succeeding Robert Hall, who led the committee for 46 years.

The committee isn’t a government agency, but its dates work as the official record. The federal government doesn’t publish a competing chronology, and the Commerce Department began reporting the NBER’s peak and trough dates in 1961. The Bureau of Labor Statistics (BLS) describes the NBER as the official arbiter of US recessions.

Why the official call comes late

The committee looks back rather than forecasting. It waits until enough data are in, and until routine revisions have been made, so it can be confident a turning point happened and date it accurately. As a result, a recession can be months old, or even over, before it’s officially declared.

Turning point	Type	Date announced	Months later
February 2020	Peak	June 8, 2020	4
March 2001	Peak	November 26, 2001	8
December 2007	Peak	December 1, 2008	12
June 2009	Trough	September 20, 2010	15
March 1991	Trough	December 22, 1992	21

That lag is why economists and journalists watch faster signals, covered below, while they wait for the committee.

Why two quarters of falling GDP isn’t the official test

What GDP measures

Gross domestic product (GDP) is the value of the final goods and services produced in the United States. The Bureau of Economic Analysis (BEA) publishes it every quarter, reports growth at an annual rate and updates each quarter’s figure in later estimates as more data come in. Real GDP is adjusted for inflation, so it shows changes in output rather than changes in prices.

The rule of thumb and its limits

The financial press often describes a recession as two consecutive quarters of decline in real GDP. It’s easy to track, and most recessions the NBER has dated do include two or more straight quarters of falling real GDP. But not all of them do. The 2001 recession didn’t include two consecutive quarterly declines.

The committee gives several reasons for not using the two-quarter rule:

• It considers a range of indicators rather than treating GDP as the whole economy.
• The decline has to be significant. Two small quarterly dips in real GDP wouldn’t necessarily count.
• Its main chronology is monthly, and GDP is only published quarterly.
• When it looks at quarterly output, it gives equal weight to real gross domestic income (GDI), the income-side measure of the economy. The gap between GDP and GDI mattered in dating the 2001 and 2007–2009 recessions.

So two small negative GDP quarters don’t automatically make a recession, and a recession can happen without them.

The indicators the committee weighs

The committee relies mainly on monthly measures of the whole economy published by federal statistical agencies:

• Real personal income less transfers (income from sources other than government benefits, adjusted for inflation)
• Nonfarm payroll employment
• Employment measured by the household survey
• Real personal consumption expenditures (consumer spending)
• Manufacturing and trade sales, adjusted for price changes
• Industrial production

There’s no fixed formula for how these measures are weighted. In recent decades, the committee has put the most weight on real personal income less transfers and nonfarm payroll employment. For quarterly dates, it also looks at real GDP and real GDI. Data for many of these measures is free to download from FRED, the Federal Reserve Bank of St. Louis’s data site.

Where the unemployment rate fits

The unemployment rate is one of the most-watched numbers in a downturn, but it doesn’t line up neatly with the NBER’s dates. It can start rising before a peak, while the economy is still growing slowly, and it can keep rising after a trough. After the June 2009 trough, unemployment kept climbing for four more months and peaked at 10.0% in October 2009.

Early warning signs economists watch

The Sahm rule

The Sahm rule, developed by economist Claudia Sahm, uses the national unemployment rate to flag the likely start of a recession. It signals when the three-month average of the unemployment rate rises 0.50 percentage point or more above its lowest three-month average from the previous 12 months.

For example, if the lowest three-month average over the past year was 4.0%, the rule would signal once the current three-month average reached 4.5%. FRED publishes a real-time version of the indicator each month.

The Sahm rule is a warning sign, not an official call. Only the NBER committee sets US recession dates.

Why no single signal settles it

Early signals are useful, but each has limits. Data get revised, one unusual event can distort a month’s numbers, and an indicator can flash a warning while the broader economy is still growing. That’s why the committee looks at many measures together and waits for the data to settle. When you see a recession forecast or probability, check who produced it, what it’s based on and when it was published.

What a recession can mean for your money

Jobs and income

Job losses are the most direct way a recession reaches households. In the 2007–2009 recession, the unemployment rate rose from 5.0% in December 2007 to 9.5% by June 2009, according to BLS. Job openings fell 44% over the same period.

The damage wasn’t spread evenly. Construction and manufacturing had their steepest job declines of the post-World War II era, while employment in education and health services kept growing through the recession.

Budgets, borrowing and housing

If your income could drop, knowing your fixed costs helps you plan. A simple framework like the 50/30/20 rule can show how much of your budget goes to needs, wants and savings. It also helps to know how unemployment insurance works in your state, and to contact lenders early if you expect to miss a payment.

Borrowing costs don’t always fall in a recession. Mortgage rates tend to follow longer-term bond yields more closely than the Federal Reserve’s short-term policy rate, and they can stay high if inflation remains a concern. When you compare loans, the annual percentage rate (APR) shows the yearly cost of borrowing, including certain fees, not just the interest rate.

Recession vs. depression

There’s no official line between a recession and a depression. The NBER doesn’t identify depressions separately in its chronology. “Depression” is a looser term for an especially severe period of economic weakness, and some economists use it to include the long climb back to normal activity.

The Great Depression is the example most people know. The NBER dates a contraction from an August 1929 peak to a March 1933 trough, lasting 43 months, followed by a second contraction from May 1937 to June 1938.

Frequently asked questions

Who officially declares a recession in the US?

The Business Cycle Dating Committee of the National Bureau of Economic Research, a private nonprofit research organization. It dates the peaks and troughs of US business cycles, and the federal government doesn’t publish a competing chronology.

Is two quarters of negative GDP a recession?

Not officially in the US. It’s a common rule of thumb, and most US recessions have included two straight quarters of falling real GDP, but the 2001 recession didn’t. The NBER weighs several monthly measures of jobs, income, spending, sales and production instead.

How long do recessions usually last?

Since 1945, US recessions have averaged about 10 months, based on the NBER’s dates. They’ve ranged from two months in 2020 to 18 months in 2007–2009.

How long does it take to know a recession has started?

There’s no set timeline. The NBER has taken between four and 21 months after a turning point to announce it. The fastest was the February 2020 peak, announced in June 2020.

Does rising unemployment mean a recession has started?

Not by itself. Unemployment can rise before a recession begins and keep rising after one ends. Signals such as the Sahm rule use unemployment to flag a likely recession, but the NBER looks at a wider set of measures before making a call.

What’s the difference between a recession and a depression?

A depression is an informal term for an especially deep and long downturn. The NBER doesn’t date depressions separately. The Great Depression shows up in its records as a 43-month contraction starting in 1929, followed by another starting in 1937.