How will you know a recession when you see it?

• Author: Adams, Tucker Hart
• Position: The ECONOMIST

"What can the government do to prevent the depression?" my left-wing friend Carol e-mailed me.

"Not a depression," I e-mailed back, "Just a recession."

"What's the difference?" she wrote. "The dictionary is no help."

Webster's Ninth New Collegiate Dictionary defines a recession as a period of reduced economic activity and a depression as a period of low general economic activity marked by rising levels of unemployment.

Carol is right--that's not very helpful. If we use Webster's definition, over the last 30 years Colorado was in a depression in 1980, 1982, 1985, 1986, 1991, 1992, 1996, 1998, 2001, 2002 and 2003. The level of unemployment rose in each of those years. Depending on how you define reduced economic activity, we've been in recession most of the time. Obviously, that is silly.

The media tells us that a recession is two consecutive quarters of decline in inflation-adjusted gross domestic output (real GDP). If that is correct, we haven't had a recession since the first quarter of 1991. The 104,000 Coloradans who lost their jobs between December 2000 and June 2003 and didn't all find new jobs until December 2005--when employment finally returned to its December 2000 level of about 2.25 million--would beg to differ with that definition.

Although a recession isn't any of these things, each definition contains a piece of the truth. A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and wholesale-retail sales. You'll find the definition on the website of the National Bureau of Economic Research (www.nber.org).

NBER was founded in 1920 to examine the business cycle and long-term economic growth. It began compiling business cycle chronology in 1929 and has dated all the business cycles since the recession that ended in December 1854. NBER's Business Cycle Dating Committee was formed in 1978, and today this group determines when peaks and troughs in economic activity occur. It is made up of six economists appointed by NBER president Martin Feldstein, who also serves on the committee.

Since World War II, NBER has used a range of indicators relating to output, income, trade and labor market...