Recession
Economic downturn with declining GDP, rising unemployment, and reduced spending. Technically 2 consecutive quarters of negative GDP growth.
What You Need to Know
Recession is a significant decline in economic activity lasting more than a few months. Traditional definition: 2+ consecutive quarters of negative GDP growth. NBER (official arbiter) also considers employment, income, and sales.
Recession characteristics:
- GDP contracts (negative growth)
- Unemployment rises (layoffs increase)
- Consumer spending decreases
- Business investment declines
- Stock market often falls 20-40%
Historical recessions:
- 2020: 2 months (COVID, -31% GDP in Q2)
- 2008-2009: 18 months (Financial crisis, -8.5M jobs)
- 2001: 8 months (Dot-com crash)
- 1990-1991: 8 months (Gulf War, savings & loan crisis)
Average frequency: Every 5-6 years. Average duration: 10-18 months.
What to do during recession:
- Maintain 6-12 month emergency fund
- Don't panic-sell investments (buy low opportunity)
- Keep investing (dollar-cost averaging)
- Prioritize job security if possible
- Avoid major debt
Recessions are temporary but painful. Markets bottom before economy recovers. By the time recession is "officially declared," stocks often already rebounded 20%+.
Sources & References
This information is sourced from authoritative government and academic institutions:
- nber.org
https://www.nber.org/research/business-cycle-dating
Related Calculators & Tools
Put your knowledge into action with these interactive tools:
Inflation Impact Analyzer
Calculate purchasing power erosion, compare historical prices, and analyze minimum wage real value over decades
Personal Inflation Calculator
Calculate YOUR personal inflation rate based on your actual spending patterns and see required income growth
Related Terms in Economics
Federal Funds Rate
Interest rate banks charge each other for overnight loans. Set by Federal Reserve. Controls all other interest rates—mortgages, credit cards, savings.
Inverted Yield Curve
Short-term bonds pay higher rates than long-term bonds. Recession predictor—has preceded every recession since 1950, usually by 12-24 months.
Market Correction
10-20% market decline from recent peak. Healthy and common—happens every 1-2 years. Not as severe as 20%+ bear market.
Prime Rate
Interest rate banks charge most creditworthy customers. Usually Fed funds rate + 3%. Credit cards and HELOCs tied to prime rate.
Stagflation
Stagnant economy with high inflation—worst of both worlds. Rising prices + high unemployment + no growth. Rare but devastating.
Yield Curve
Graph showing bond yields across different maturities. Normal = upward slope (long-term pays more). Inverted = recession warning.