Business Cycle Dating Committee Announcement July 19, 2021

Determination of the April 2020 Trough in US Economic Activity

Cambridge, July 19, 2021 - The Business Cycle Dating Committee of the National Bureau of Economic Research maintains a chronology of the peaks and troughs of US business cycles. The committee has determined that a trough in monthly economic activity occurred in the US economy in April 2020. The previous peak in economic activity occurred in February 2020. The recession lasted two months, which makes it the shortest US recession on record.

The NBER chronology does not identify the precise moment that the economy entered a recession or expansion. In the NBER’s convention for measuring the duration of a recession, the first month of the recession is the month following the peak and the last month is the month of the trough. Because the most recent trough was in April 2020, the last month of the recession was April 2020, and May 2020 was the first month of the subsequent expansion.

In determining that a trough occurred in April 2020, the committee did not conclude that the economy has returned to operating at normal capacity. An expansion is a period of rising economic activity spread across the economy, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion.

The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession associated with the February 2020 peak. The basis for this decision was the length and strength of the recovery to date.

The Month of the Trough

In determining the date of a monthly peak or trough, the committee considers a number of indicators of employment and production. In the current case, all of those indicators point clearly to April 2020 as the month of the trough. On the employment side, the committee normally views the payroll employment measure produced by the Bureau of Labor Statistics (BLS), which is based on a large survey of employers, as the most reliable comprehensive estimate of employment. This series reached a clear trough in April before rebounding strongly the next few months and then settling into a more gradual rise. However, the committee recognized that this survey was affected by special circumstances associated with the COVID-19 pandemic in early 2020. In the survey, individuals who are paid but not at work are counted as employed, even though they are not in fact working or producing. Workers on paid furlough, who became more numerous during the pandemic, thus resulted in an overcount of people working. Accordingly, the committee also considered the employment measure from the BLS household survey, which excludes individuals who are paid but on furlough. This series also shows a clear trough in April. The committee concluded that both employment series were thus consistent with a business cycle trough in April.

The committee believes that the two most reliable comprehensive estimates of aggregate production are the quarterly estimates of real Gross Domestic Product (GDP) and of real Gross Domestic Income (GDI), both produced by the Bureau of Economic Analysis (BEA). Both series attempt to measure the same underlying concept, but GDP does so using data on expenditure while GDI does so using data on income. These measures estimate production that occurred over an entire quarter and are not available monthly. The most comprehensive income-based monthly measure of aggregate production is real personal income less transfers, from the BEA. The deduction of transfers is necessary because transfers are included in personal income but do not arise from production. This measure reached a clear trough in April 2020. The most comprehensive expenditure-based monthly measure of aggregate production is monthly real personal consumption expenditures (PCE), published by the BEA. This series also reached a clear trough in April 2020.

The Quarter of the Trough

In determining the date of a quarterly peak or trough, the committee relies on real GDP and real GDI as published by the BEA, and on quarterly averages of key monthly indicators. As with the monthly trough, there is strong agreement across the indicators about the timing of the quarterly trough: the indicators all point strongly to 2020Q2. Quarterly real GDP and real GDI both reached clear troughs in 2020Q2, as did quarterly averages of both the monthly payroll and household employment series. 

Further Comments

The NBER’s traditional definition of a recession involves a decline in economic activity that lasts more than a few months. For example, the previous shortest recession occurred in the first half of 1980 and lasted six months.  However, in deciding whether to identify a recession, the committee weighs the depth of the contraction, its duration, and whether economic activity declined broadly across the economy (the diffusion of the downturn). The recent downturn had different characteristics and dynamics than prior recessions. Nonetheless, the committee concluded that the unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warranted the designation of this episode as a recession, even though the downturn was briefer than earlier contractions.

Committee members participating in the decision were: Robert Hall, Stanford University (chair); Robert Gordon, Northwestern University; James Poterba, MIT and NBER President; Valerie Ramey, University of California, San Diego; Christina Romer, University of California, Berkeley; David Romer, University of California, Berkeley; James Stock, Harvard University; Mark Watson, Princeton University.