Economic Recession

Definition: The technical definition of an economic recession is when GDP growth is negative for two quarters or more. A recession is usually preceded by several quarters of slowing but positive growth. It usually feels like a recession before it has officially started. Therefore, a recession is also defined by a period when economic growth slows, businesses stop expanding, employment falls, unemployment rises, and housing prices decline.

The National Bureau of Economic Research (NBER) is the official arbiter of economic expansions and contractions, or business cycles. According to the NBER, the most recent recession lasted between March 2001 - November 2001 even though GDP growth was negative for only one full quarter during that time period. (See NBER, Business Cycle Expansions and Contractions)

The NBER defines recession as "a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." It doesn't restrict itself to using the technical definition of two quarters of negative GDP growth because it is only measured quarterly and it is subject to revisions. By the time GDP growth is negative for two quarters, the recession is already well underway. (See NBER, Business Cycle Dating Committee, July 2003; The Business Cycle Peak of March 2001)

During that time period, GDP growth was positive for Q2 and Q4, and negative only for Q3. Although GDP growth was negative in Q1, the recession only started in March, so there wasn't a full two quarters of negative GDP growth in that recession. (See Google Spreadsheet, GDP Growth)

Examples: Through the use of expansionary monetary policy the Federal Reserve tries to prevent recession.