The Flexible Definintion of a Recession

• What a recession is depends largely on what expert you choose to listen to, which is why sometimes media pundits argue over whether a recession is even taking place. In the strictest sense, a recession is a contraction in the economy. However, in real terms that could simply mean that the economy is growing more slowly than the rate of inflation. The common definition in use in the media is when the growth of the Gross Domestic Product (GDP) in real terms (adjusted for inflation) is negative for two fiscal quarters or more. The National Bureau of Economic Research (NEBR) has a much vaguer definition: a "decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and wholesale-retail sales" (see Resources below).
  To give an example of how perception-based the definitions of depression and recession are, Portugal's economy has been stagnant for several years. Growth was 1.3 percent in 2006 and 1.9 percent in 2007. Unemployment rose every year between 2000 and 2007. If conditions like that prevailed in the US, it would be called a depression, as a depression is defined a particularly severe recession lasting for an extended period of time. Yet hardly anyone describes Portugal as being in a depression, merely in a prolonged recession.
  
  

Signs of a Recession

• A clear recession will involve declines in investment, employment and corporate profits. However, it has been the case in the past where corporate profits are stable, but employment, wage growth, and other leading economic indicators have been negative, leading to disputes over whether a recession is really taking place. Adding to the confusion and the disputes over recession are other indicators: A recession may be defined by deflation (as was the case in Japan throughout the 1990s) or inflation (as in the United States in the late 1970s).
  
  

Duration

• If there is one thing that most experts agree upon, a downturn is not a recession until it has lasted for a least two quarters, or six months. That poses one of the difficulties about diagnosing a recession: a short one can be over by the time it has been recognized. Collecting and computing reliable data on leading economic indicators can take time, and so therefore when the necessary two quarters/six months of economic downturn have been established, the economy may already be righting itself.
  
  

Recent Economic History

• In recent history, the United States has experienced four periods that were generally acknowledged as recessions: January to July 1980; July 1981 to November 1982; July 1990 to March 1991; November 2001 to November 2002; December 2007 into 2009. Note that the technical end of a recession does not necessarily mean the end of economic difficulties. Most Americans continued to believe that the country was in recession through 1991, producing political problems for President George H.W. Bush. Bush protested that the country was not in a recession, and technically he was right, but this did not mean that troubled times had actually come to an end. Also note that although it is now generally agreed that in the most recent economic crisis the country slumped into recession at the end of 2007, many experts disputed whether there was a recession well into the summer of 2008.