Recession

A contraction deep enough, broad enough and long enough to be treated as a phase of the cycle rather than a soft patch. The shorthand almost every headline uses, two consecutive quarters of falling real gross domestic product, began as journalistic convention rather than as anyone's official definition. It has the advantage of being unambiguous and the disadvantage of resting on a single series that is revised, sometimes heavily, long after it is first published.

Formal dating works differently. In the United States a committee at the National Bureau of Economic Research fixes the peaks and troughs of the cycle by weighing depth, diffusion and duration across several measures, among them real income, employment, industrial production and sales, and it announces dates months and sometimes more than a year after the turning point itself. The euro area has an equivalent committee. Most other economies rely on their statistical agency's output series or on the two quarter convention, so a recession can be officially under way in one jurisdiction and merely arguable in another with similar data.

For markets the consequence is timing. A recession is a classification of the past, published with a lag, while the assets that respond to it are pricing what they expect months ahead, so the announcement rarely coincides with the move. What participants watch instead are indicators claimed to lead the cycle, including a yield curve inversion and surveys of purchasing managers. The record of those signals is genuinely disputed: each has preceded contractions and each has also signalled ones that did not arrive, and the sample of cycles available to test them against is small.