James D. Hamilton*
(Updated February 2, 2010—see the chart and text in bold.)
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. Thus with the 2009:Q4 advance GDP numbers released by the Bureau of Economic Analysis on January 29, 2010, a value of the recession indicator index describing economic conditions for the third quarter of 2009 can be calculated. 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 an expansion.
The algorithm determined that the most recent U.S. recession began in 2007:Q4. The current value for the GDP-based recession indicator index for 2009:Q3 is 37.6, suggesting that a recovery may well have started as of the third quarter. According to the procedure recommended by Marcelle Chauvet and James Hamilton (2006, in Nonlinear Time Series Analysis of Business Cycles, 2006, 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 fully revised data available at the time will be used by the algorithm to assign a most probable end date for the recession.
For more details about the method, see Chauvet and Hamilton's paper or the less technical description by Hamilton. One 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.
