What is a Recession?

Who Determines Recessions in the US?

The National Bureau of Economic Research (NBER) serves as the authoritative source for identifying US recessions through their “Business Cycle Dating” methodology, which establishes the definitive timeline for economic downturns.

What Exactly is a Recession?

A recession constitutes a substantial decline in economic activity persisting over several months, characterised by three primary dimensions:

Depth

Depth measures the severity of the recession—how significantly economic output contracts. This metric is typically quantified through GDP percentage declines, job losses, or reductions in consumer spending.

Diffusion

Diffusion describes how broadly the recession spreads across economic sectors and geographic regions. A more widespread impact across manufacturing, services, technology, and retail indicates a more systemic economic downturn.

Duration

Duration refers to how long the recession persists. Some recessions last only a couple of quarters, while others extend for years, substantially affecting the economy’s recovery trajectory and return to growth.

Debunking the GDP Myth

A common misconception holds that two consecutive negative GDP quarters automatically signal a recession. However, this is not universally true—while often an indicator, it doesn’t definitively establish a recession. Notably, the NBER itself avoids using GDP in their recession definitions.

The Subtle Arrival of a Recession

Recessions develop gradually rather than arriving suddenly. Economic data releases occur on different dates throughout the month, typically appearing monthly or less frequently. This staggered release schedule requires careful monitoring to detect early recession signals through accumulated evidence.