How do you measure the duration of a recession?

I think the NBER approach could be significantly enhanced by incorporating alternative data sources, such as consumer spending patterns and social media sentiment. These unconventional data streams offer real time insights into consumer confidence and behaviour, which are critical indicators of economic health. Leveraging big data analytics, the NBER could gain a more immediate and granular understanding of the economy's trajectory, potentially identifying shifts in economic activity before they fully manifest in traditional indicators. This integration of modern data sources would represent a significant evolution in the methodology, enabling a more nuanced and timely analysis of economic cycles.

My professional experience has been with America's two largest banks, and within both of my roles, this rule has been referenced and utilized. While I think it is a strong indicator and easily comparable across time and between countries, there is a laundry list of macroeconomic variables it does not consider. Unemployment, inflation, and consumer spending v. saving v. debt are three macroeconomic variables that the vast majority of the population will be able to feel and see clearly. In a recession, the average consumer doesn't look to the GDP as a measure of economic downfall, but to their own paycheck and job security. A population struggling with unemployment, homelessness, and food security will likely not look to the GDP as a marker.

The reason why the NBER relies on the opinions of experts is that no one method is foolproof. Peak-to-trough methods may not accurately capture inflection points in the cycle; meanwhile quarterly data is volatile and subject to revisions such that technical recessions often get revised in or revised away. Although negative growth does capture the contractionary nature of recessions, the sign on real growth does not tell the full story. There are periods of expansion that feel like recession (e.g. China growing at nearly 5% but taking a severe hit to private residential investment). There have also been periods of low positive real growth only by virtue of deflation (e.g. several episodes during Japan's lost s decades).

In my experience, the peak-to-trough method, while effective in many ways, requires a complementary qualitative analysis to overcome its limitations. This involves considering the broader economic context, such as policy changes and market sentiments which can significantly influence the indicators used in this method. For instance, a global economic event can alter the trajectory of economic indicators, making it challenging to pinpoint the exact peak or trough. Additionally, integrating qualitative analysis helps in understanding the real impact of the recession on different sectors and demographics, which may not be fully captured by quantitative data alone.