Recession Definition: When an Economy Goes Into Reverse

Recession definition in plain words

1. Economic sense. A period when total economic activity in a country falls and stays down for a while. Output, income, employment and shop sales all tend to drop together. This is the meaning in almost every headline.
2. Physical sense. The act of moving backward or withdrawing: the recession of the tide, gum recession (gums pulling back from the teeth), the recession of a hairline.

So when someone asks what does a recession mean, the honest short reply is: the economy has gone backward for long enough, and widely enough, that ordinary people feel it. A single bad month for one industry does not count.

How economists decide a recession has started

A rule of thumb you will hear often says a recession means two quarters in a row (six months) of falling gross domestic product, or GDP, the total value of goods and services a country produces. It is easy to measure, so reporters like it.

Many economists treat that rule as a shortcut, not the official test. In the United States, a panel of economists at a private research body dates recessions by looking at a wider set of figures: jobs, real income after inflation, factory output and sales. Their working description is a significant decline in activity, spread across the economy, lasting more than a few months. That is why a country can have two weak quarters and still not be called in recession, or the reverse.

India and many other countries mostly follow GDP data released by their own statistics offices, and commentators there also use the phrase technical recession for the two-quarter pattern.

Signs people notice

• Companies freeze hiring, cut shifts or announce layoffs.
• Unemployment rises over several months.
• People spend less on travel, cars, eating out and big home purchases.
• Business profits fall and some firms close.
• Central banks often lower interest rates to encourage borrowing and spending.

Example sentences

• The company delayed opening its new store until the recession was over.
• Many graduates who left college during the last recession took longer to find their first job.
• Economists disagree on whether the slowdown will turn into a full recession.
• The government cut taxes to soften the blow of a recessionary year.
• After the flood, the slow recession of the water revealed damaged roads.

Recession, depression, slowdown and stagflation

The line between a recession and a depression is not fixed by any law; depression is reserved for downturns so severe and long that they reshape a generation. Rising prices are a separate idea, covered on our inflation page.

For more money words, open our money and business words hub, or see how a budget is planned when income falls.

Where the word comes from

Recession came into English in the 17th century through French from Latin recessio, "a going back", built on recedere, "to go back or withdraw" (re-, back, plus cedere, to go). The same root gives recede and recess.

The economic meaning is much younger. Word historians trace it to late 1929, when the stock market crash was hitting the world economy. Some have noted that the word sounded gentler than older terms like slump or panic, so it may have started partly as a softer way to describe bad times.

Using the word correctly

Common phrases: enter a recession, slip into recession, pull out of a recession, a deep recession, a mild recession, a global recession, fears of recession, recession-proof jobs.

British and Indian English often drop the article (the country is in recession), while American English more often keeps it (the country is in a recession). Both are correct. Do not mix it up with recess, which is a break from work or school, or with secession, which means a region formally leaving a country.