Recession
A recession is a significant, broad decline in economic activity lasting more than a few months, typically marked by falling output, rising unemployment, and weaker spending.
The most quoted rule of thumb is two consecutive quarters of falling real GDP. It is a rough guide rather than a definition. In the United States, the National Bureau of Economic Research dates recessions using a broader picture including employment, income, and production, and it declares them only well after they begin.
Recessions have varied causes: a central bank tightening policy to control inflation, a financial crisis that freezes credit, an external shock such as a sharp rise in energy prices, or the unwinding of an asset bubble. What they share is a self-reinforcing loop where falling demand leads to job losses, which further reduce demand.
Governments and central banks typically respond by cutting rates and increasing spending. These measures take time to work and carry their own costs, which is why the depth and length of recessions vary so widely.
Markets tend to move ahead of the data. Equities often fall before a recession is confirmed and begin recovering while conditions still look poor, because prices reflect expectations rather than the present. This is why waiting for an official declaration is a poor basis for investment decisions.
TrustFinance News covers the indicators that shape recession expectations, from labour market data to yield curve movements.