Center for Quantitative Economic Research

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GDP-Based Recession Indicator Index - August 2009

James D. Hamilton
Department of Economics, University of California, San Diego

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 most recent trend. Thus with the 2009:Q2 advance GDP numbers released by the Commerce Department on July 31, 2009, a value of the recession indicator index describing economic conditions for the first quarter of 2009 can be calculated. To maximize usefulness as a real-time indicator, the index is not subsequently revised.

The algorithm determined that the current recession began in 2007:Q4. The most recent value for the GDP-based recession indicator index for 2009:Q1 is 99.7. That value is the highest since 1980 and close to the maximum possible value of 100.0, indicating the economy was still deep in recession in 2009:Q1. According to the procedure recommended 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), the recession will be declared to be over when the index falls below 33. At that point, the algorithm will use the fully revised data available at the time to assign a most probable end date for the recession.

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 2009: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. A spreadsheet containing historical values of the index can also be downloaded.