What defines a recession?

A recession is defined as a decline in economic activity across the economy that lasts for an extended period, typically visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The commonly accepted benchmark for identifying a recession is a decline in GDP for two consecutive quarters. However, many economists and the National Bureau of Economic Research (NBER) consider a more comprehensive approach, which includes a decline in GDP for a duration of three consecutive quarters as a clear indication of a recession.

This definition reflects the significant and sustained downturn in economic activity that impacts various economic indicators, marking a comprehensive slowdown in the economy. The focus on three consecutive quarters specifically underscores the persistence of the downturn, rather than short-term fluctuations, which can be misleading in assessing overall economic health.

The other options do not accurately represent the characteristics of a recession:

• An increase in GDP for three consecutive quarters indicates economic growth rather than a recession.

• A stable GDP over several periods suggests that the economy is stable and not experiencing recessionary conditions.

• An increase in employment rates typically correlates with economic growth and recovery, contrasting the characteristics of a recession.

Overall, understanding that three consecutive quarters of declining GDP marks a recession provides clarity on how such economic downturns are