Recession

What Is a Recession?

In general terms, a recession is often defined as two consecutive quarters of negative GDP growth . Since Gross Domestic Product (GDP) measures the total value of goods and services produced in an economy, it’s widely seen as the most comprehensive gauge of economic health.

However, in the U.S., the official call on whether a recession has started or ended comes from the National Bureau of Economic Research (NBER) — a private, non-profit research organization that analyzes economic trends. According to the NBER, a recession is “a significant decline in economic activity that affects the economy broadly and lasts more than a few months.”

One important thing to know: the NBER can take months to officially declare a recession. By the time they do, the downturn may have already ended, and the economy might be on the path to recovery.

So, Are Two Quarters of Negative Growth Always a Sign of Recession?

Not exactly. While two straight quarters of shrinking GDP are often used as a rule of thumb, this isn’t the only factor the NBER considers. Sometimes, a single quarter of negative growth doesn’t necessarily signal a recession — especially if the drop was driven by temporary changes like inventory buildup or trade imbalances, while the broader economy continues to grow.

The problem with relying solely on GDP figures is that they don’t capture the full picture. Other key indicators — like employment levels, industrial output, and consumer sentiment — also play a crucial role in understanding the state of the economy.

Economists suggest that to accurately assess whether a recession is happening, you should also look at:

• Industrial production
• Consumer confidence
• Capacity utilization

A drop in these indicators often gives a clearer sign that a real economic slowdown is underway.

Recessions Aren’t Always Clear-Cut

In reality, the term “recession” can feel somewhat arbitrary. Economic downturns usually begin long before any official declaration is made. And because the economy is always shifting, there’s no single moment when things suddenly go from good to bad — it's more of a gradual process.

How Can You Tell If a Recession Has Started?

You don’t need to wait for official reports to get a sense of a recession. Often, you can see signs all around you:

• Construction projects slow down or come to a halt.
• Friends or colleagues may lose jobs or face reduced hours and pay cuts.
• Retailers start lowering prices to sell off unsold goods — a sign that consumers are spending less.

These real-world observations can be early warnings that the economy is weakening.

Statistical Signs That Point to a Recession

From a data-driven perspective, certain numbers can help confirm whether a recession is underway:

• The Purchasing Managers’ Index (PMI) for both manufacturing and services drops below 50 — signaling contraction.
• The unemployment rate starts rising, potentially reaching 6% or higher.
• In the U.S., weekly initial jobless claims rise above 300,000 — sometimes even hitting 400,000 or more — indicating growing layoffs.

When these numbers line up with weak GDP readings, it becomes harder to ignore the fact that the economy is slowing down.