Glossary
Recession
A broad, sustained contraction in economic activity, dated in the United States by a committee of economists after the fact.
The shorthand people repeat, two consecutive quarters of shrinking output, is a rule of thumb rather than the definition. In the United States the call is made by the National Bureau of Economic Research, a private nonprofit, which weighs employment, income, production and spending together and announces start and end dates once the data has settled.
That announcement often arrives many months after the period began, and sometimes after it has already ended. So the sentence "we are in a recession" is a forecast or an opinion at the moment somebody says it, not a fact. The fact turns up later, with a date attached.
Share prices and the economy run on different clocks, which is the part that confuses people. Markets have often fallen before a recession was recognized and risen again while unemployment was still climbing, because a share price is about profits expected later while the economic data describes what already happened.
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Lesson 5: Risk, in the Language You Already UseWhat you can actually lose, why volatility and loss are not the same word, and diversification without the lecture.
Related terms
- Bear MarketA fall of 20 percent or more from a recent high, across a whole market rather than a single stock.
- InflationThe rate at which prices across an economy rise over time, which reduces what a fixed amount of money will buy.
- Interest RatesThe cost of borrowing money, steered in part by central banks, and one of the few things that moves nearly every stock at once.
- VolatilityHow much a price moves around over a period, in either direction, measured as the size of the swings rather than the destination.
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