Recession

The common shorthand - two negative quarters - is not the definition. A recession is a broad decline in activity, and it is dated months after it begins, from the inside out.

Direction, not a pair of quarters

A recession is a significant, broad decline in economic activity that lasts more than a few months. The popular shorthand - two consecutive quarters of falling output - is a rule of thumb some countries use for a technical label, not the definition most economists rely on.

The distinction matters because GDP is only one line of evidence. A recession is judged across production, employment, income and spending together, and the fall has to be broad rather than concentrated in one struggling sector.

Why it is dated after the fact

The start and the end of a recession are decided by looking backwards. A peak in activity and the trough that follows only become clear once enough monthly and quarterly data has accumulated, and that data arrives with lags and revisions.

Using the lag honestly

Because the dating is retrospective, a declared recession describes the recent past rather than the next quarter. By the time it is announced, the decline is usually well advanced. What is watchable in real time is narrower: which components are falling, and whether the output gap is widening on the negative side.

One checkable use: when you hear the word, ask which measures fell and for how long, rather than accepting a single quarter's headline. A number that is negative for 1 quarter while employment and income keep rising is not yet the thing itself.

Related: GDP · Output Gap · Stock vs Flow

Next: Real vs Nominal