What is a Recession?

A recession is generally described as a slowdown of economic growth over a sustained period of time. The exact terms are up for debate but economic growth is usually considered in terms of GDP (Gross Domestic Product) and the period of time is usually at least two quarters.

In the U.S., recessions are officially declared by the National Bureau of Economic Research (NBER) whose job it is to put dates around recession periods. In addition to employment data, the NBER also looks at economic statistics like industrial production, real manufacturing, wholesale retail trade sales and real personal income (less transfer).

The factors of the economy that are most visibly disturbed from a recession are increases in unemployment and decreases in real income, wholesale and retail sales and industrial production. Interest rates also drop during this period to encourage spending rather than saving.

Economists believe that recessions are part of a natural business cycle and thus unavoidable. As of 2009, we are currently in a period of recession and have been since December 2007. Other recent recessions have occurred from 1990-1991, and 2001-2002.

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