3 Better Ways to Measure a Recession

3 Better Ways to Measure a Recession

NEW YORK (MainStreet) — The U.S. economy has been out of a recession for more than two years, but for many Americans it feels as though we’re still stuck in it – and for good reason. Unemployment remains above 9%, foreclosure activity continues to increase and consumers still have more than $15,000 in household debt on average. But when it comes to determining whether we are in a recession, none of those factors matter anywhere near as much as the gross domestic product.

Strictly speaking, a recession is defined as two consecutive quarters of negative GDP growth, signaling that the economy is contracting, though the economic panel that determines the beginning and end of recessions, the National Bureau of Economic Research, also factors in real income, employment, industrial production and wholesale and retail sales to make a more timely and comprehensive decision.

By assigning so much weight to GDP as the primary factor, economists run the risk of labeling the economy one thing when the reality on the ground seems much different. Or to put it differently, by defining a recession primarily in terms of economic contraction and growth, rather than in more human terms, the word itself fails to capture the dire mood that much of the country associates it with.

“The synonym for ‘recession’ isn’t ‘bad times,’ it’s ‘shrinking economy’,” says Gary Burtless, a labor economist at the Brookings Institution. “That means declining output and rising unemployment.” Burtless points out that throughout the 1930s there were two cycles of business expansion as the U.S. economy grew at its fastest rate in history, yet Americans then and now describe this entire period as the Great Depression. “Even at the end of it, the unemployment rate was over 10%, so no one would say it was good times.”

To say, then, that the country is no longer in a recession seems to miss the point. Sure, that means the economy is growing again, which should in turn set the stage for the kind of fiscal conditions that eventually improve the lives of average consumers, but there could be months or years in between in which households continue to suffer financially. What we really want is a recession index that measures the “bad times,” as Burtless says, or the nation’s fiscal mood and level of “gloominess,” as another economist puts it.

MainStreet asked several economists to suggest three other metrics we might use to determine whether the nation’s economy is in bad times and gauge how far we have to go to get back to the good times.


Perhaps more than any other single factor, economists say the difference between good times and bad is measured by the difference in the number of unemployed Americans now compared with before the recession began.

“Many people are still out of work and haven’t regained any kind of employment since the recession began, which is probably a big factor in why people are saying it still feels like we’re in a recession,” says Paul Dales, U.S. economist at Capital Economics in Toronto.

At the moment, the unemployment rate is stuck at 9.1%, compared with 5% in December 2007 when the recession officially began. Dales says this fact highlights just how much growth is needed in the labor market before the country feels the bad economic times are over.

Alternatively, federal policy analyst Andrew Fieldhouse suggests taking this metric one step further by looking at Bureau of Labor Statistics data on the employment-population ratio. The data shows that roughly 3% less of the population was employed in August of this year than at the start of the recession, and 6% less than at peak employment in the beginning of the 2000s.

“This puts into context just how bad it’s been and shows just how much ground really has to be made up between 5% and 9% unemployment,” Fieldhouse says.