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Recession

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Definition: The textbook definition of a recession is when GDP growth is negative for two consecutive quarters or more. However, no one really knows where this so-called definition came from or whether it is even useful. Once the economy contracts for two quarters, you've already been in a recession for awhile. That's because a recession is usually preceded by several quarters of slowing but positive growth.

The National Bureau of Economic Research (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." These are the indicators to watch if you want to know when the economy is in a recession. Why trust the NBER? It's the official arbiter of economic expansions and contractions, or business cycles. It doesn't restrict itself to using the technical definition of two quarters of negative GDP growth. Why not? First, GDP growth is only measured quarterly. Second, it is subject to revisions. By the time GDP growth is negative for two quarters, the recession is already well underway. For this reason, the NBER also monitors the other indicators, which come out monthly.(See NBER, Business Cycle Dating Committee, July 2003; The Business Cycle Peak of March 2001)

The NBER declared the Great Recession over as of the third quarter 2009. See Recession Is Over. This was the worst recession since the Great Depression, with five quarters of economic contraction, four of them consecutive, in 2008 and 2009. It was also the longest, lasting for 18 months.

The NBER said the 2001 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)

(Updated June 30, 2011)

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

Make the most of your money despite troubling financial times.

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