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Concept
Recession
Summary
In economics, a recession is a business cycle contraction that occurs when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock, the bursting of an economic bubble, or a large-scale anthropogenic or natural disaster (e.g. a pandemic).
In the United States, a recession is defined as "a significant decline in economic activity spread across the market, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." The European Union has adopted a similar definition. In the United Kingdom, a recession is defined as negative economic growth for two consecutive quarters.
Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply and decreasing interest rates or increasing government spending and decreasing taxation.
In a 1974 article by The New York Times, Commissioner of the Bureau of Labor Statistics Julius Shiskin suggested that a rough translation of the bureau's qualitative definition of a recession into a quantitative one that almost anyone can use might run like this:
In terms of duration – Declines in real gross national product (GNP) for two consecutive quarters; a decline in industrial production over a six-month period.
In terms of depth – A 1.5% decline in real GNP; a 15% decline in non-agricultural employment; a two-point rise in unemployment to a level of at least 6%.
In terms of diffusion – A decline in non-agricultural employment in more than 75% of industries, as measured over six-month spans, for six months or longer.
Over the years, some commentators dropped most of Shiskin's "recession-spotting" criteria for the simplistic rule-of-thumb of a decline in real GNP for two consecutive quarters.
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