4 Definitions of Recession

John Spacey, September 13, 2022

A recession is a prolonged economic downturn. These can be identified with the combination of a definition and economic data. Beyond a definitional recession, a recession can be called by economists as subject matter experts. The following are common definitions of a recession.

1. Zero or negative growth of GDP in at least two successive quarters.

2. Negative economic growth for at least six months.

3. A significant decline in economic activity that is spread across the economy that lasts longer than a few months.

4. A prolonged economic decline of six months or more that is normally visible in measures of GDP growth, income, employment, industrial production and retail sales.

Discussion

In an inflationary environment, a decline in nominal GDP has more negative impact. For example, if GDP declines 4% and inflation is 10% real financial conditions are rapidly getting worse as the economy is producing less GDP and that GDP has less real value.

The first two definitions (above) provide a bright line that anyone can use to identify recessions after they occur. The latter two definitions require interpretation by a subject matter expert such as an economist.