Recession
recessions
A recession is a broad decline in output, jobs, income and spending lasting several months; two straight quarters of falling real GDP is a common rule of thumb, but in the US the NBER makes the official call using wider data.
In plain terms
A recession is when the economy goes into reverse. The media often use "two negative quarters of GDP" as shorthand, but that is only a rule of thumb. In the US, the National Bureau of Economic Research (NBER), a private research group, dates the start and end of recessions by looking at jobs, income, spending, industrial production and more, usually announcing its decision months later.
Why it matters
In a recession, profits and jobs shrink, and central banks cut rates to cushion the blow. Markets move long before any official call, reacting to signals such as an inverted yield curve, rising unemployment or PMIs below 50.
How it connects to markets
- Rising recession fears: lower Treasury yields (flight to safety and expected cuts), weaker cyclical stocks, oil and copper, and a tilt toward defensives such as consumer staples and health care
- Gold, yen and dollar: money tends to flow to safe havens
- Stocks have often bottomed and started recovering before a recession officially ends