So why not just use the two quarters of negative GDP growth as a fast and easy measure? The reason is that using GDP as the lone benchmark would lead to incorrectly classifying certain slowdowns in economic expansions as a recession. That same measure also would have missed actual recessions. It is noteworthy that while most of the recessions identified by NBER do consist of two or more quarters of declining real GDP, not all of them do.

The explanation for why GDP alone isn't a full or complete yardstick of economic activity is straight-forward. The NBER’s research on measuring the economy -- it has published more than 20,000 white papers on the subject -- shows that including factors such as real income, employment, industrial production and wholesale and retail sales, produces a measure that is both more accurate and precise than GDP alone.  (The NBER’s FAQ details four specific reasons why two consecutive quarters of negative GDP is insufficient to identify a recession).

Perhaps most important, the determination that is made by the NBER to date the start and finish of recessions is based on publicly available data. You can track the exact same factors the NBER does, and estimate the dates of when the NBER will officially call a recession with some degree of confidence.

On the other hand, if you want a simpler recession explanation, let me suggest the one used by the Economic Cycle Research Institute, a private-sector research firm. It notes that the economy, “in order to signal a genuine turn in the cycle, must change direction in a way that is pronounced, pervasive, and persistent.”

Understanding when a recession begins and ends is a useful bit of information for investors. Whether it will make you any money is another issue.

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