Are we in a recession or not? The talking heads and pundits on TV can't seem to agree, and the economists on Wall Street can't even agree on the proper definition of recession. Isn't there a simple formula that we can use to determine if the answer is "yes"? Well, if you're a fan of Freakonomics, you probably won't be surprised that Justin Wolfers has found an algorithm developed by fellow economist Edward Leamer that perfectly predicts whether or not we are in a recessionary environment:

"Pick probable recessions based on the following thresholds: a decline in industrial production for 6 months at the rate of -6 percent per year or more; a decline in payroll employment for 6 months at the rate of -1 percent per year or more; an increase in the unemployment rate in a 6-month period by at least +0.8 percentage points."

You be the judge: "Every post-war recession has satisfied all three criteria at least once, and [Leamer's] rule has never given a false positive. Sure, it’s easy to fit 10 data points with enough data mining, but this paper is pure Leamer: honest, straightforward, clear — and a fun read."

Oh, and in case you're wondering, this Leamer algorithm - just one of many out there - suggests that the current business cycle does not yet meet the definition of a recession.

[image: Freakonomics]