Low positive GDP growth has been interpreted as evidence that the economy may be "stalling", implying that low growth is a strong predictor of future recessions. We examine the empirical evidence for stalling based on kernel density estimates, probit estimates and Markov switching models.
Whether we find evidence for stalling or not depends crucially on how a stall is defined. If we define a stall as a low but positive growth rate, then there is no evidence of stalling in US GDP. Low growth is as likely to be followed by higher growth as by a recession. In contrast, if we define a stall as a decline in the growth rate of the economy to below some threshold, we find evidence for stalling.
We also discuss the merits of each of the definitions of stalling, and limitations in using aeronautical analogies for discussing the business cycle.
JEL classification: C22, E32, E37
Keywords: Business cycles, stall speed, Markov switching