A 0.3% contraction in U.S. GDP during the first quarter has reignited speculation about an impending recession. However, even if the economy is indeed on the verge of a downturn, it may be many months—if not longer—before it is officially labeled as such.
While market convention often defines a recession as two consecutive quarters of negative GDP growth, the formal declaration in the U.S. is made by the National Bureau of Economic Research (NBER). Specifically, the call comes from NBER’s Business Cycle Dating Committee, a group of eight leading macroeconomists from elite academic institutions including Harvard, MIT, Stanford, Princeton, Northwestern, and UC Berkeley.
The committee’s mandate is to identify the peak and trough of the U.S. economic cycle using a broad range of economic indicators, not just GDP. Importantly, their determinations are retrospective and often come well after a downturn has passed. This lag allows for the incorporation of revised data and a fuller picture of economic dynamics.
The NBER defines a recession as a “significant decline in economic activity” that is widespread across the economy and persists for more than a few months. For a downturn to qualify, it must meet qualitative thresholds for depth, diffusion, and duration.
“It has to be deep enough and wide enough, and last long enough to be called a recession—and it’s a total judgment call with those three,” says Robert Gordon, a Northwestern University economist and longtime member of the committee.
The U.S. last recorded two consecutive quarters of GDP contraction in the first half of 2022, but NBER declined to classify that period as a recession. GDP rebounded swiftly afterward, and no further contraction occurred until this year’s Q1.
Gordon and other economists point to the narrow nature of the recent GDP decline—driven largely by businesses frontloading imports ahead of the Trump administration’s tariff announcements—as a reason to be skeptical that a broader economic downturn has begun.
Founded in 1920 and headquartered in Cambridge, Massachusetts, the NBER operates independently of the federal government. Its work is funded through a mix of government and private research grants, charitable donations, and income from its endowment.
Gordon emphasizes that the organization’s recession declarations are shielded from political pressure. “The NBER is an independent institution and not particularly dependent on federal funds, so there is nothing they can do to us” if the committee rules on a downturn, he notes.
Gordon stresses that GDP alone does not drive recession decisions. “The NBER typically dates the start of a recession as the month in which payroll employment begins to decline on a sustained basis,” says Mark Zandi, chief economist at Moody’s Analytics. “This makes sense, as payroll employment is the best contemporaneous measure of economic activity.”
So far in 2025, labor market conditions remain resilient, with no sustained job losses pointing to recession. Gordon adds that there’s no predefined lifespan for an expansionary phase, and the U.S. economy has demonstrated a capacity for prolonged periods of growth. He points to the long cycles that followed major inflection points, such as the early-1980s “Volcker shock” when the Fed raised rates to 20% to combat runaway inflation.
Since the 1980s, U.S. expansions have generally lengthened. The post-financial crisis recovery lasted from June 2009 through February 2020, while the 1990s also delivered a decade of steady growth. The current expansion began in mid-2020, bolstered by aggressive monetary and fiscal policy responses to the pandemic.
That said, the data picture is far from uniform. Gordon anticipates a modest rebound in GDP for Q2, as import activity normalizes following the inventory build-up in Q1. However, he expects the inflationary impact of the tariffs to materialize gradually, creating a drag on consumer purchasing power over the second half of the year.
From an employment perspective, businesses are still in a cautious holding pattern. While there are signs of deceleration in certain sectors, Gordon argues that companies are hesitant to enact large-scale layoffs due to ongoing labor shortages and the high cost of losing experienced talent. “There’s so much uncertainty that firms aren’t going to want to have mass layoffs and lose their best employees, so that will help,” he says.
In essence, this is an environment where headline economic data may appear contradictory and advisors need to pay close attention to underlying trends. Payroll employment, wage growth, industrial production, retail sales, and personal income metrics all feed into the NBER’s assessment, and no single data point—GDP included—will determine the outcome alone.
The NBER’s committee makes its calls only when there is a high level of confidence in the trend, and given the current mix of inflationary pressures, resilient labor markets, and uneven trade activity, there is no consensus that the economy is in or near a recessionary phase.
For wealth advisors, this backdrop reinforces the importance of active monitoring and client communication. The ambiguity in the macroeconomic outlook demands that portfolio strategy incorporate flexibility and risk-mitigation elements. In particular, the lag in official recession calls means markets and clients may experience volatility well in advance of any formal economic diagnosis.
Additionally, the timing and impact of policy shifts—from tariffs to interest rates—may play out over months, not weeks, suggesting that short-term reactions should be tempered. For example, while tariffs may lead to increased costs and compressed margins in specific sectors, their cumulative effect on inflation and consumer demand could take several quarters to unfold.
Another implication is for asset allocation. If the labor market holds firm and wage growth persists, consumer spending could provide a buffer to offset trade-related weakness, supporting cyclical equities and select fixed-income segments. However, if employment metrics start to turn decisively negative, the signal from the NBER could soon follow—albeit with a delay that requires advisors to stay ahead of the curve.
Ultimately, the lesson for RIAs is to interpret first-quarter GDP contraction within a broader mosaic of economic data and context. The NBER’s measured, multifactor approach to recession dating underscores the need for advisors to avoid overreacting to isolated quarterly prints and instead focus on comprehensive, fundamentals-based planning.
Advisors should counsel clients to look beyond the headlines and remain grounded in long-term strategies that account for both upside potential and downside risk in a climate of policy uncertainty and data ambiguity.
