Recession
A recession is generally understood as a period marked by two successive quarters of negative growth in Gross Domestic Product (GDP).
Official Determination of a Recession
The National Bureau of Economic Research (NBER), a leading non-profit economic research organization, officially declares the beginning and end of recessions. They define a recession as a considerable decrease in economic activity spread throughout the economy, lasting more than a few months. However, NBER's declaration often comes months after a recession has begun, frequently when the economy has already started to recover.
Understanding a Recession Beyond GDP
While a common indicator of a recession is two consecutive quarters of negative GDP growth, this rule is not absolute. The NBER considers other aspects beyond GDP, such as significant increases in inventories and trade balance adjustments, which might not directly imply an economic downturn. Factors like unemployment rates, industrial production, consumer confidence, and capacity utilization also play critical roles in confirming a recession. This broader perspective helps in accurately identifying economic slowdowns, making the notion of a recession somewhat subjective.
Identifying a Recession in Everyday Life
Recessions manifest through tangible effects in daily life. Signs include a slowdown in residential and commercial construction, job losses or reductions in salary among acquaintances, and price drops due to excessive inventory. Statistically, a recession might be indicated by declines in manufacturing and service sector PMIs below 50, an unemployment rate exceeding 7%, and a substantial rise in jobless claims, potentially reaching between 350,000 to 450,000.