Identifying the date of the trough involved weighing the behavior of various indicators of economic activity.
Why doesn’t the Committee accept the two-quarter definition?
The Committee’s procedure for identifying turning points differs from the two-quarter rule in a number of ways.
First, we do not identify economic activity solely with real GDP, but use a range of indicators, notably employment.
Second, we consider the depth of the decline in economic activity.
The committee waited to make its decision until revisions in the National Income and Product Accounts, released on July 30 and August 27, 2010, clarified the 2009 time path of the two broadest measures of economic activity, real Gross Domestic Product (real GDP) and real Gross Domestic Income (real GDI).
The committee noted that in the most recent data, for the second quarter of 2010, the average of real GDP and real GDI was 3.1% above its low in the second quarter of 2009 but remained 1.3% below the previous peak which was reached in the fourth quarter of 2007.
The trough marks the end of the declining phase and the start of the rising phase of the business cycle.
Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion.
It places particular emphasis on measures that refer to the total economy rather than to particular sectors.
These include a measure of monthly GDP that has been developed by the private forecasting firm Macroeconomic Advisers, measures of monthly GDP and GDI that have been developed by two members of the committee in independent research (James Stock and Mark Watson, available here), real personal income excluding transfers, the payroll and household measures of total employment, and aggregate hours of work in the total economy.
See Data Sources The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP.