What is a recession? How economists define a downturn

A recession is a significant fall in economic activity that spreads across the economy and lasts more than a few months: output shrinks, businesses cut back, and people lose jobs and income. Many people use a quicker rule of thumb, two quarters in a row of falling GDP. In the United States, though, recessions are officially dated by a committee of economists that looks at much more than GDP.

In short

• "Two quarters of falling GDP" is a common rule of thumb, not an official definition; in the US, the NBER's committee dates recessions using jobs, income, spending and output.
• Recessions usually start with a shock: an oil price spike, a central bank fighting inflation, a burst bubble or a financial crisis.
• Since 1945, US recessions have lasted about 10 months on average. A depression is a far deeper and longer one.

What counts as a recession?

There are two definitions in common use, and they usually agree but not always.

	Rule of thumb	NBER's definition (US)
What it says	Two quarters in a row of falling real GDP	"A significant decline in economic activity that is spread across the economy and that lasts more than a few months"
What it looks at	GDP only	Jobs, real income, real spending, sales, industrial production and GDP
Who uses it	Journalists and analysts, and many countries in practice	The accepted US dating, used by government agencies and researchers
When you know	When the second quarter's GDP is published	Months or more afterwards

GDP, gross domestic product, is the value of everything an economy produces, and "real" means adjusted for price changes. The rule of thumb is simple and quick, which is why it is popular, and the IMF's economists note that there is no official definition of a recession, so many analysts lean on it. In the United States, the job falls to the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), a private, nonprofit research group. The committee doesn't use the two-quarter rule. It asks three questions: how deep is the fall, how widely is it spread across the economy, and how long does it last? A very deep fall can count even if it is short.

When do the two definitions disagree?

The 2001 recession is the textbook case: the NBER dated one from March to November 2001, but real GDP did not fall for two quarters in a row. The 2020 recession went the other way in a different sense. It lasted only two months, February to April 2020, but the NBER counted it because the fall was so deep and so widespread.

2022 shows the rule of thumb misfiring the other way. The official estimates published in July 2022 showed US GDP falling in both the first and second quarters, at annual rates of 1.6% and 0.9%, and many headlines said the US was in a recession. But employers added jobs month after month and unemployment stayed low, and the NBER never declared one. When the Bureau of Economic Analysis revised its figures in September 2024, the second quarter's fall turned into slight growth; in the figures as they stood in October 2026, the first quarter shrank at a 1.0% rate and the second grew at 0.6%. The data a recession call rests on can change for years afterwards, which is one reason the NBER waits: it took 4 months to announce the February 2020 peak, and 21 months to announce that the 1990–91 recession had ended.

What causes recessions?

Most recessions follow a shock that makes households and businesses spend less at the same time. The IMF's economists list the usual causes: a sharp rise in the price of something everyone needs, such as oil; a central bank or government tightening policy to fight inflation; a financial crisis after a run of borrowing and rising asset prices; or a fall in demand from abroad. Once spending falls, it feeds on itself. A business that sells less lays off workers, those workers spend less, and other businesses sell less in turn.

Here are the US recessions of the last half-century, with the NBER's dates and the shock most often blamed for each.

Recession	Peak to trough	Length	What set it off
1973–75	Nov 1973 to Mar 1975	16 months	Oil embargo and a quadrupling of oil prices
1980	Jan 1980 to Jul 1980	6 months	High inflation and sharply higher interest rates
1981–82	Jul 1981 to Nov 1982	16 months	The Federal Reserve raising rates to break inflation
1990–91	Jul 1990 to Mar 1991	8 months	Oil price spike after Iraq invaded Kuwait
2001	Mar 2001 to Nov 2001	8 months	The end of the dot-com boom, then the 11 September attacks
2007–09	Dec 2007 to Jun 2009	18 months	The housing bust and [[what-caused-the-2008-financial-crisis
2020	Feb 2020 to Apr 2020	2 months	The COVID-19 pandemic and lockdowns

Two of the seven came from a central bank deliberately slowing the economy. When the Federal Reserve raises interest rates to bring inflation down, borrowing costs more, spending slows, and sometimes it slows too far.

How is a recession felt?

For most people a recession arrives as a job market problem. Layoffs rise, hiring freezes, and people who lose work take longer to find more. In the 2007–09 recession, US employment fell by about 5%, and the unemployment rate kept rising after the recession had officially ended, peaking at 10.0% in October 2009, according to the Bureau of Labor Statistics. Unemployment is a lagging sign: it often peaks after the economy has started growing again.

Because unemployment rises so reliably, economists watch it as an early warning. The Sahm rule, named after the economist Claudia Sahm, signals a recession when the three-month average unemployment rate rises 0.5 percentage points or more above its lowest three-month average of the previous 12 months. Other signs people watch include falling factory orders, rising claims for unemployment benefits and an inverted yield curve, when short-term interest rates are higher than long-term ones. None of these is a guarantee, and each has given false alarms.

How is a recession different from a depression?

A depression is an extremely deep, long recession. There is no formal line, but the IMF's economists say analysts generally use the word when GDP falls by more than 10%. The Great Depression is the defining case: the US contraction ran 43 months, from August 1929 to March 1933, and real GDP fell by about 26% between 1929 and 1933. Since 1945, US contractions have averaged about 10 months. The story of what went wrong is in what caused the Great Depression.

Still argued

Economists argue about whether recessions can be avoided, and at what cost. Some hold that skillful central banks can bring inflation down with only a mild slowdown, a "soft landing", and point to cases where that happened. Others, notably economists in the Austrian tradition, argue that recessions are part of how economies clear out bad investments and that delaying them can make them worse. No one has a reliable way to predict the next one, which is why this note doesn't try.

Recessions are the downturns of the business cycle, the rise and fall of activity that runs through every market economy, and they are one of the main things economics tries to understand.

Check yourself

• Why is "two quarters of falling GDP" only a rule of thumb, and what does the NBER look at instead?
• Give one example of the two definitions disagreeing, and explain why.
• Why does unemployment often keep rising after a recession has ended?

Sources

• Business Cycle Dating Procedure: Frequently Asked Questions — National Bureau of Economic Research
• US Business Cycle Expansions and Contractions — National Bureau of Economic Research
• Recession: When Bad Times Prevail — Claessens and Kose, IMF Finance and Development
• The Recession of 2007–2009 — U.S. Bureau of Labor Statistics, 2012
• Real Gross Domestic Product, percent change from preceding period — U.S. Bureau of Economic Analysis, via Federal Reserve Bank of St. Louis, 2026
• Real Gross Domestic Product, annual — U.S. Bureau of Economic Analysis, via Federal Reserve Bank of St. Louis, 2026