Recession Fears Rise Amid Q1 GDP Contraction, But Will Official Call Come?
Economists caution that an official recession may not be declared for months – or even years – despite the first-quarter GDP contraction. While two consecutive quarters of negative growth is often viewed as a sign of recession, it's not the only consideration in determining whether a downturn has occurred.
The Business Cycle Dating Committee: Who Decides?
The Business Cycle Dating Committee (BCDC) is responsible for identifying recessions, but their job is to make an official call after the fact. Led by Stanford professor and economist Valerie Ramey, the committee bases its determination on a broader set of indicators and only makes the call after reviewing months of backward-looking data.
Like umpires calling a baseball game, the BCDC's job is to make an official call after the fact. That means we often don't know we're in a recession until it's already underway, or even over. "The NBER doesn’t predict [recessions], they tell you after the fact," Michael Darda, chief economist and macro strategist at Roth Capital Partners, explained.
The Official Definition of a Recession
According to the National Bureau of Economic Research (NBER), a recession is a "significant decline in economic activity that is spread across the economy and that lasts more than a few months." To make this call, the NBER looks at several key indicators: employment, real personal income, industrial production, and real business sales.
The NBER also weighs three main criteria – depth, diffusion, and duration – when assessing a downturn. A particularly sharp drop in just one area can sometimes tip the scales, as it did during the COVID-induced recession of 2020, when a severe and widespread collapse in activity led the committee to declare a recession that lasted only two months.
Why Timing Matters
For policymakers, investors, and historians, the timing of the call isn't just academic. It shapes the interpretation of economic cycles, informs the evaluation of policy decisions, and influences which lessons are carried into future downturns.
The Role of Indicators: Unemployment Rate, GDP, and More
While unemployment has risen by at least 200 basis points in every recession on record, no single metric is definitive. It's the broader weight and totality of the data that truly matters. "Data can get very noisy," Claudia Sahm, former Federal Reserve board economist and chief economist at New Century Advisors, pointed out.
The unemployment rate may be the most useful single indicator, but it's not a foolproof signal. The NBER doesn't consider stock market performance in its determinations, and softer survey-based indicators such as consumer confidence are also not used.
A Look at Past Recessions: Lessons Learned
Notable declines in 1987, 2011, and late 2018 all occurred without a subsequent recession. That's why the NBER does not consider stock market performance in its determinations. Even the Sahm Rule, which is a real-time signal that a recession has likely begun, was briefly triggered in 2022 (and again in 2024), but no recession followed.
What to Expect: A Closer Look at the Data
We'll find out for sure when the NBER umpires make the call. For now, signs like modest hiring slowdowns and reduced hours suggest a potential downturn may not fully materialize until later in the year as cost pressures from tariffs and delayed layoffs gradually show up in the data.
Conclusion
Recession fears are rising, but economists caution that an official downturn may not be declared for months – or even years. The Business Cycle Dating Committee will ultimately make the call based on a broader set of indicators and backward-looking data. While timing is everything, it's clear that predicting recessions remains a complex challenge.