Definition
A recession is a significant, widespread, and prolonged decline in economic activity. The traditional definition is two consecutive quarters of negative GDP growth, though the NBER uses broader criteria including employment, production, and retail sales. Recessions are characterized by rising unemployment, falling corporate profits, declining consumer spending, and market volatility. The average recession lasts about 11 months. Stocks often decline before recessions begin and recover before they end. Different sectors have varying recession sensitivity.
Example
The 2008-2009 recession saw GDP contract nearly 5%, unemployment double to 10%, and the S&P 500 fall 57%. Yet stocks bottomed in March 2009, six months before GDP turned positive, demonstrating market's forward-looking nature.
FAQ
What is Recession?
A significant decline in economic activity lasting more than a few months.
Why is Recession important?
Recession helps investors evaluate macroeconomic and make more informed decisions.