GDP-Based Recession Indicator Index
James D. Hamilton*
Federal Reserve Bank of Atlanta, (Updated) August 5, 2013



The GDP-based recession indicator index is a pattern-recognition algorithm that assigns dates to when recessions begin and end based on the observed dynamics of U.S. real GDP growth. To make a reliable inference, it is necessary to wait one quarter for data to be revised and confirm the current trend. With the 2013:Q2 advance GDP numbers released by the Bureau of Economic Analysis on July 31, 2013, we can calculate a value of the recession indicator index describing economic conditions for the first quarter of 2013. To maximize usefulness as a real-time indicator, the index is not subsequently revised. The index ranges from 0 to 100, with a value above 50 indicating the data are more consistent with a recession than expansion.

The benchmark revisions in the national accounts that were released on July 31 suggest even weaker growth for 2012:Q4 and 2013:Q1 than the earlier reports from the BEA implied. U.S. real GDP is now reported to have barely grown in 2012:Q4 and to have grown only at a 1.1 percent annual rate in the first quarter of 2013. This weak growth has led to a sharp increase in the recession indicator index, which now stands at 30.5 percent. One factor in the slow growth of 2012:Q4 and 2013:Q1 was a reduction in government purchases of goods and services.

The recession indicator index provides one objective signal that the recent GDP numbers are even weaker than we’ve become accustomed to seeing since the economy began its disappointing recovery from the Great Recession in 2009:Q3. Note, however, that this does not mean the economy has entered recession territory. The index would have to rise above 67 percent before such a declaration would be warranted, based on the procedure described in a paper by Marcelle Chauvet and James Hamilton (from Nonlinear Time Series Analysis of Business Cycles, 2006, edited by Costas Milas, Philip Rothman, and Dick van Dijk). Using their rules for dating business cycles, the most recent recession was determined to have begun in 2007:Q4 and ended in 2009:Q2. These start and end dates for the recession are the same as were announced separately by the Business Cycle Dating Committee of the National Bureau of Research (NBER), though the NBER did not issue its end-date declaration until September 2010.

GDP-based recession indicator index

The plotted value for each date is based solely on information as it would have been publicly available and reported as of one quarter after the indicated date, with 2013:Q1 the last date shown on the graph. Shaded regions represent dates of NBER recessions, which were not used in any way in constructing the index, and which were sometimes not reported until two years after the date.

For more details about the method, see Chauvet and Hamilton’s paper or the less technical description by Hamilton. You can also download a spreadsheet containing historical values of the index.

*James Hamilton is a professor of economics at the University of California, San Diego.

Category: Cycles, Economy, Think Tank

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7 Responses to “GDP-Based Recession Indicator Index”

  1. chartist says:

    Looks like the average time between recessions is around 8 years…..Two more years to go before the next one?

    • constantnormal says:

      “… around 8 years” applies only to the span of time shown in the chart. If one examines the historical record of recessions, depressions and financial panics in the US, one arrives at a much smaller value for the interval between such events (I come up with an average of about 3 years). Since the reforms of the 1930s, we have seen the severity of these events diminish, and the intervals between them lengthen.

      However, since rolling back nearly all of the reforms of the 1930s, the severity of recessions has increased, perhaps we will see the interval between recessions begin to contract as well, especially if the Congress continues to abandon their responsibilities and continue their political wars, as if that were somehow related to the serious business of running the nation.

      However, this is all speculation, I seriously doubt that an economy comprised of almost 300 million individuals operates on so simplistic a model … whatever happens, happens … we’ll recognize the make and model of the vehicle that drives over us as it recedes into the distance, just as we always do.

  2. constantnormal says:

    Fascinating chart!

    One is left wondering if the current spike upward is an instance like those in the mid-80s and mid-90s, or the start of something more significant.

    And IF it is the latter, what will the Fed be able to do, that is of any significant impact?

    The only thing I can imagine is the ever-popular, “truckloads of money from helicopters” … no wonder Bernanke wants to get out.

    Every time he ponders the likelihood of the Congress doing the work they are charged with under the Constitution, he probably pulls out the brochures for retirement in some distant tropical island paradise …

    • Angryman1 says:

      Looks like the 80′s/90′s growth cycle. Notice how that “spike” was the end of the actual recession and then the following years were the “boom years”.

  3. denim says:

    Interesting work by these economists. Unfortunately, they use GDP. To paraphrase Robert Kennedy, GDP measures a lot of things that most Americans don’t care about.

  4. Hallsto says:

    What is the loan cycle, Alex?

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