The test everyone repeats for a recession, output shrinking for two quarters running, is a shorthand. In the United States, it isn’t the rule that gets a downturn officially called one.
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The UK’s Office for National Statistics calls that shorthand a “technical recession,” and treats it with some caution. Darren Morgan, the ONS’s director of economic statistics, points out how thin the trigger is. A swing of a tenth of a percentage point either way is enough to count. He says that kind of move usually leaves the economy “broadly flat, but some people do get excited about it.”
Grant Fitzner, the ONS’s chief economist, is blunter still. Reporters need a number they can explain in one line, he says, and the two-quarter test meets that need. He doubts anyone would seriously call a dip of that size “a recession”. His own bar is higher: “a prolonged and significant downturn in economic activity,” not one or two quarters of a fraction of a per cent.
Who actually calls one
In the United States, that job belongs to a committee at the National Bureau of Economic Research, a private non-profit research organisation. The Bureau of Economic Analysis, which compiles the GDP figures newspapers quote, says plainly that the two-quarter rule “is not an official designation.”
The NBER’s committee doesn’t lean on GDP alone. It also works through employment, personal income and industrial production, month by month, rather than waiting for a quarter to close. Because it weighs those monthly readings, especially employment, the committee’s own calendar of US recessions doesn’t always match two straight quarters of decline.
That gap shows up most in a downturn that doesn’t sit still. Economist Julius Shiskin wrote the two-quarter test down as a rule of thumb in 1974, and it is the version that stuck in general use. It still misses a slump shaped like a W. Output falls, climbs for a quarter, and falls a second time. Shiskin’s rule would clear that economy both times, since neither fall runs for two quarters alone. The NBER’s broader definition could still count it as a recession.
What the label is actually for
Behind either test, a downturn does much the same thing to the people living through it. Jobs disappear and businesses struggle to sell, as BBC Newsround’s guide to the term puts it for readers meeting the word for the first time. The number that makes the headline is the one that is quickest to check, not the one that best describes a shrinking pay packet or a shop with no customers. Whichever test a country’s statisticians reach for, that is the trade-off built into it.
