When is a drop in GDP a recession?

• USA The Fed raises interest rates again

This Thursday we are going to see headlines everywhere with the words

.

The reason is that this country is going to publish the preliminary GDP data for the second quarter.

And it's possible that those data show negative growth, which is just economists' fancy way of saying that

fell.

If sales are "divestments", it stands to reason that "negative growth" declines.

So today the news will be 'US enters recession' or 'US dodges recession'.

But, be that as it may, that headline will mean nothing.

What's more: whether we consider it true or false will depend on the statistics we use.

The first thing to look at is what a recession is.

The standard definition is that it is a drop in GDP in two consecutive quarters.

But that is not a universally applied concept.

In fact, it is only used by

.

Neither in the EU nor in the US does a recession occur when GDP falls for two consecutive quarters.

The US case is very convoluted, because in that country the body that 'certifies' recessions and expansions is a private think tank, based in

, the National Bureau of Economic Research (NBER), founded by one of Ronald Reagan's economic policy 'fathers',

.

The NBER's definition of "recession" is very much its own: "A significant, economy-wide decline in activity that lasts more than a few months" and is "visible in GDP, real incomes, employment, output industrial, and wholesale sales".

Thus, there is no reference to GDP falling.

Although, if the definition of the NBER is followed, the last recession that the United States suffered... would not have been a recession, because it only lasted two months -- in March and April 2020, due to

-- and, according to the 'doctrine ' of the think tank, the process should last "more than a few months".

Besides, according to the NBER, there is no way that the US, with its tremendous job growth, is in a recession.

Things get even more confusing when you decide what statistics to use to define what a recession is.

The US measures GDP at an annualized quarterly rate, which is like measuring the growth of this quarter (April to June) in relation to the previous one (January to March) and then projecting it for the year as a whole.

In other words, it is observed how much the economy has grown (or fallen) in this period, and then it is estimated how much it would be if that had happened in a whole year.

That method (quarterly annualized) is also used in

, but is different from Europe, where GDP is measured relative to the previous quarter (quarterly) or the previous year (year-on-year).

It is not a trivial difference.

The quarterly annualized is, by definition, much more volatile, while the interannual shows less variation.

Thus, an annualized quarter-on-quarter 'recession' can be a year-on-year expansion.

It all depends on which statistic is used to measure GDP.

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