Recession

In Depth

A recession is a broad-based decline in economic activity that lasts more than a few months. While the popular shorthand defines it as two consecutive quarters of negative GDP growth, the official determination in the United States is made by the National Bureau of Economic Research (NBER) Business Cycle Dating Committee. The NBER examines a range of indicators including real personal income (less transfers), nonfarm payrolls, real personal consumption expenditures, wholesale-retail sales, and industrial production. The committee considers the depth, diffusion, and duration of the decline before making its call, often many months after the recession has begun or ended. During recessions, unemployment rises, corporate earnings fall, consumer spending contracts, and credit conditions tighten. The Federal Reserve typically responds by cutting interest rates and may deploy unconventional tools like quantitative easing. Since World War II, the United States has experienced 12 recessions, with the average lasting about 10 months. For business leaders, recession planning involves building cash reserves, diversifying revenue streams, renegotiating contracts, and identifying counter-cyclical opportunities.