Recession is a general term for a slowdown in economic activity. It can be a tough time for businesses and people as sales drop, layoffs happen, and stock markets lose value. However, there are things you can do to help protect yourself from a recession’s financial impact, like adding to your emergency savings and maintaining a solid professional network.
Recessions can be a result of many things, including financial market issues and natural disasters. For example, a credit boom that leads to people or companies taking on too much debt can cause overextension that leads to a reduction in investment and spending. In addition, natural disasters can wreak havoc on the economy by decreasing consumer demand, which in turn reduces the amount of goods and services produced.
While there is no one-size-fits-all definition of a recession, most economists use two consecutive quarters of decline in real gross domestic product (GDP) as a gauge of a country’s economic health. This is a useful rule of thumb, but it can be difficult to pinpoint when a recession begins and ends as economic indicators change quickly.
The National Bureau of Economic Research (NBER) in the US, which maintains a chronology of business cycles, uses a more broad-based approach to determine whether there is a recession, using a wide variety of metrics. For example, it looks at employment trends, housing prices and construction, exports and imports, and financial market activity to decide when a recession is occurring.