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What Is a Recession?

A recession is a significant, widespread, and prolonged downturn in economic activity. A popular rule of thumb is that two consecutive quarters of decline in gross domestic product (GDP) constitute a recession. Recessions typically produce declines in economic output, consumer demand, and employment.

Numerous economic theories attempt to explain why and how the economy might fall off of its long-term growth trend and into a recession. These theories can be broadly categorized as based on economic, financial, or psychological factors, with some bridging the gaps between these.

Some economists focus on economic changes, including structural shifts in industries, as most important. For example, a sharp, sustained surge in oil prices due to a geopolitical crisis might raise costs across the economy, while a new technology might rapidly make entire industries obsolete, with recession a plausible outcome in either case.