Warren Buffett says that the U.S. is still in a recession despite the fact that by the usual standard, the recession is over. He claims that his definition better reflects the economic realities of average people. To understand what Buffett is saying, consider the following chart of a hypothetical history of Gross Domestic Product (GDP), a measure of the output of an economy. GDP starts to drop at time A, begins to increase again at time B, and recovers to its previous high at time C. By the usual definition, the recession lasted from A to B, and the recovery started after B. But Buffett says that people are still suffering while GDP levels are depressed. He says that the recession is from A to C and that the period from B to C is just a “technical recovery”. Just because things are improving, we can’t conclude that things are great. At some point in the winter it starts to get warmer, but it is still cold. Winter is over when it warms up, not when it stops getting cold...

Canada’s Gross Domestic Product (GDP) rose 0.3% in the second quarter of this year, which means that we’re not in a recession. This should be good news, but it’s actually mildly annoying. We all know that the economy hasn’t been great lately. Even if unemployment is low, we know people who have lost jobs and have been forced into lower paying jobs or part-time work. Stock prices are dropping. Housing prices are dropping. To say that we’re not in a recession is like denying that there are any problems with the economy. But the numbers don’t lie. GDP shrank in the first quarter and rose in the second quarter. The definition of a recession requires two consecutive quarters of dropping GDP. So, we’re not in a recession. The emotional response to this news was captured nicely in the headline “Canada skirts recession on a technicality.” The implication is that we all know that things have been rough and we should be calling it a recession, but some number cruncher found some w...

The question of whether the economy is in recession always seems to be more confusing than it should be. Can’t someone just add up all the right numbers and tell us? According to Wikipedia’s Recession page , the standard definition of a recession is when a country’s gross domestic product declines for two or more successive quarters. This means that we can’t say for certain whether we are in a recession until 6 months after the recession starts. This gives pundits and experts at least 6 months to speculate on whether we are in a recession before the matter is settled. This is like having 9 innings to argue about which team is going to win a baseball game. No amount of careful study can say for certain who will win the game until it is over. Similarly, no amount of careful accounting can say for certain that the economy is in recession until the 6 months of decline have happened. The U.S. Commerce Department says that the economy grew by 0.6% (annualized) in the first quarter. Thi...