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The Business Cycle, and Who Actually Calls a Recession

Macro Investing • Beginner Investing • 7 min

What this lesson is about

A genuinely surprising fact. No government agency officially declares when a U.S. recession starts or ends. A private nonprofit committee does, often months after the fact.

2 parts · a quick check after each · then the quiz

Part 1 of 2

The business cycle is the pattern economies follow over time. It includes four main phases. Expansion (growth), peak (the high point), contraction (decline, often called a recession), and trough (the bottom before growth starts again). Each cycle varies in length and intensity. Some expansions last for a decade. Some contractions are quick but sharp. Others drag on. Still, this four-phase pattern has shown up repeatedly in modern economic history.

Here’s a surprising fact: no government agency officially declares when a U.S. recession starts or ends. That job belongs to the National Bureau of Economic Research (NBER), a private nonprofit group. Their Business Cycle Dating Committee makes the official call based on a variety of economic indicators. It’s not just one government body. And it’s definitely not the popular rule about “two consecutive quarters of declining GDP” that many people think is the official definition.

The business cycleOutput swinging around what the economy could produce.

Quick check

What are the four standard phases of the business cycle?

Part 2 of 2

Insider Angle: NBER's announcements often come long after the fact. Sometimes, it’s months after a recession has already begun or ended. This isn’t just bureaucratic slowness; it’s a careful approach. They look at a wide range of indicators, like employment, income, production, and sales, not just GDP. They wait for enough evidence to confirm a real turning point instead of reacting to early signals that might change later. The takeaway? By the time NBER confirms, “we are in a recession,” the economy could already be in the middle of it or even starting to recover. That’s why professional macro investors pay more attention to the leading and coincident indicators discussed later in this module, rather than waiting for NBER’s official, backward-looking confirmation.
Try This: Find out the date NBER declared the start of a recent U.S. recession, like the 2020 or 2007-2009 recession. Then compare it to when that recession is now understood to have actually begun. What’s the gap between the real-time start and NBER's official announcement?

Quick check

What organization officially determines the start and end dates of U.S. recessions?

Quiz

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