A recession is defined as two quarters (6 months) of negative economic growth. The economy ceases to expand, bringing in new workers and increased output, and begins contracting, laying off workers and declining output. Unemployment increases; output and profits fall; personal income falls.
A recession ends when positive growth is restored.
Broader definitions of an economic recession are often used. Investopedia defines an economic recession: "A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP); although the National Bureau of Economic Research (NBER) does not necessarily need to see this occur to call a recession."
As a rough rule of thumb, a recession is underway when there is a decline in gross domestic product (GDP) for two consecutive quarters.
Several strategies exist for dealing with recession:
- Keynesian economics indicate deficit spending by government will deal with any short term losses by business.
- Supply-side economics indicate government tax cuts will promote business capital investment.
- laissez-faire economics recommend the government do nothing and not interfere with market forces.
- US Business Cycle Expansions and Contractions, official NBER dates