Marking the Recession’s End - Dec 14, 2020

The National Bureau of Economic Research (NBER) is a private, non-profit, non-partisan organization dedicated to conducting economic research. Why do we care? It is the official arbiter of economic recessions and expansions. It celebrated its 100th birthday this year. 

The NBER defines a recession as “the period between a peak of economic activity and its subsequent trough, or lowest point.” It normally views a recession as “a significant decline in economic activity that lasts more than a few months.”

Unquestionably, we experienced a significant decline in activity, and the NBER rightly marked the peak of the last cycle as February. The prior expansion lasted a record 128 months.

But lockdowns brought an end to the expansion, as employment, consumer spending, and industrial production fell sharply in March. The decline accelerated in April – see Table 1.

But a sharp rebound in May and June ensued. While economic growth has recently moderated, the most economic reports are still positive.

We are not back to pre-pandemic levels, but a recession does not end when we reach the previous peak which in this case would be February. An economic expansion begins when key measures of economic activity begin to rise.

Based on that criteria, we hit bottom in April. Yet, the NBER has not declared that an economic recovery has started. It’s possible the NBER fears a second downturn in activity amid increased lockdowns and restrictions.

The body of economists that make up the NBER may be cautiously awaiting economic activity early next year before declaring that the Covid Recession is over. If so, it can backdate the end of the recession.

If the NBER timestamps April as the recession’s end, the three-month contraction would be the shortest ever. Its records date back to 1854.

Even with the improvement in the economy, some industries remain under pressure. But others have improved, and the strong rally in the stock market suggests we’ll see continued economic gains into the middle of next year, even if that improvement isn’t a straight line higher.