Understanding Recessions: Definitions, Causes, and Responses

Definition of recession and official ambiguity

In economics, a recession is described as a business-cycle contraction marked by a broad decline in economic activity. It is often associated with a widespread drop in spending (an adverse demand shock), though it can be triggered by various events such as financial crises, trade shocks, supply shocks, bursting asset bubbles, or major disasters like pandemics. A central complication is that there is no single official, universally accepted definition of a recession. The International Monetary Fund notes the lack of an official definition, while different authorities use different criteria. In the United States, the NBER is commonly treated as the authority for recession start and end dates, defining recessions as significant declines in economic activity spread across the economy and lasting more than a few months. In contrast, the U.S. Bureau of Economic Analysis emphasizes that the popular “two consecutive quarters of negative GDP growth” rule is not an official designation, and that recession dating is the responsibility of expert committees at the NBER. Other regions adopt their own approaches, such as the European Union’s use of GDP alongside multiple indicators, and the UK/Canada’s reliance on two consecutive quarters of negative GDP growth.

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US recession criteria and NBER dating

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