How is a recession typically defined?

A recession is typically defined as a significant decline in economic activity lasting more than a few months, which encompasses various economic indicators such as GDP, employment, investment spending, and retail sales. This definition reflects the impact a recession has on the economy as a whole and is recognized as a period where economic performance is notably weak, affecting a broad range of sectors.

The phrase “lasting more than a few months” is crucial, as it differentiates a recession from short-term fluctuations or minor downturns in the economy. A variety of economic metrics are considered when assessing a recession, which deepens the understanding of its effects on consumers and businesses alike.

Understanding this definition is critical for analyzing economic conditions and planning financial strategies, as recessions often lead to reduced consumer spending, lower employment rates, and decreased business investment, influencing the overall financial landscape.