A recession is a significant decline in economic activity that lasts for more than a few months. It involves a decrease in five key economic indicators: real GDP, income, employment, manufacturing, and retail sales.
How does a recession work?
A recession is a decline in the GDP of the economy accompanied by a fall in income and employment. The National Bureau of Economic Research (NBER) defines a recession as “a significant decline in economic activity that spreads across the economy and lasts more than a few months.” You may hear that a recession occurs when the GDP growth rate is negative for two consecutive quarters or more, but a recession can quietly start before quarterly GDP reports are released. For this reason, the NBER measures four factors using monthly data to determine if a recession has occurred. When these economic indicators fall, GDP will also decrease.
Example of a recession
The Great Recession began in 2008 back in 2006 when housing prices started to decline. Poor lending practices, derivatives tied to bad loans, U.S. regulation, and the interconnected global financial system played a role in creating the financial crisis and recession years before the economy collapsed.
Recession vs Depression
In a recession, the economy contracts for two quarters or more. A depression will last for several years. The unemployment rate tends to be lower during a recession. For example, unemployment rates rose to 10.0% during the Great Recession and 14.7% during the recession in 2020. During the Great Depression, which lasted from 1929 to 1939, the unemployment rate peaked at 25.59% in 1933.
Frequently Asked Questions (FAQs)
What happens in the case of a recession?
Generally, during a recession, GDP and manufacturing will decline, consumer spending will decrease, new construction slows, and the unemployment rate rises.
What is a recession in simple terms?
A recession is a prolonged period of economic contraction, though there is ongoing debate about the precise definition.
Source: https://www.thebalancemoney.com/what-is-a-recession-3306019
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