Broadly speaking, a Recession is usually defined as two consecutive quarters of negative GDP growth.
Because GDP measures the total level of goods and services produced over a period of time, it is considered the broadest economic measure.
Technically, a recession is officially designated by the National Bureau of Economic Research (NBER), a private nonprofit organization that conducts economic research and is best known for is what determines when a recession begins and ends.
The National Bureau of Economic Research (NBER) defines a recession as 鈥渁 significant decline in economic activity that spreads throughout the economy and lasts for more than several months.鈥?
But that determination typically takes months, and by the time the National Bureau of Economic Research determines an “official” recession, the actual slowdown in the economy has ended and the recovery has begun. 馃う
What does a recession mean?
Generally speaking, two consecutive quarters of negative GDP growth define the beginning of an economic recession, but this This is not a hard and fast rule. This isn’t the only way the NBER determines whether a recession is occurring.
For example, GDP growth may be negative in a quarter, but this is not because the economy is shrinking. Rather, this may be due to a large increase in inventories and trade balances, but the “real” economy is still growing.
As you can see, the problem with using the definition of 鈥渢wo consecutive quarters of negative GDP growth鈥?is that it makes it harder to tell whether the economy is in a recession. This definition does not take into account other macroeconomic factors such as unemployment.
Economists say other factors such as industrial production, consumer confidence and capacity utilization should also be considered when judging whether a recession is occurring. Declines in these macroeconomic factors help send a stronger signal that a recession has arrived.
Basically, recessions are arbitrarily designated and the economy slows down well before any official recession.
How do you know if we are in a recession?
How do you know if we are actually in a recession?
The simplest answer is that you will see it in your own life. Residential and commercial construction around your city will slow down. Someone you know is going to lose their job or have their pay cut. As stores accumulate large amounts of inventory, the price of items will begin to drop because people have stopped spending and now they need to get rid of items at significant price cuts. In fact, this is when you get into a recession.
From a statistical perspective, manufacturing and services PMI will fall , possibly below 50. In addition, the unemployment rate will rise, possibly reaching over 6% or higher.
In the United States, unemployment claims should steadily rise above 300,000 and approach 400,000 or higher.
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