A Recession is a period of economic slowdown. It is characterized by a decline in GDP growth and other economic indicators, such as industrial production and employment. It can last a few months or more than a year. No two recessions are exactly alike, and there are many theories about what causes them. They can be caused by financial, psychological, or real economic changes.
A recession is typically triggered by a slowdown in one or more sectors of the economy, such as energy and transportation. Disruptions in these sectors can cause companies to retrench, cut investment and hiring plans, and decrease consumer spending. This can lead to layoffs and a decline in stock prices, which can further depress the economy.
Recessions can also be triggered by a sharp increase in inflation, which prompts central banks to raise interest rates to slow the economy and bring down inflation. Rising interest rates discourage businesses and consumers from spending, which can further slow the economy.
In addition, economic downturns in major trading partners can reduce demand for US exports, which can lower corporate investment and lower industrial production. When all of these factors combine, it can result in a downturn that lasts for more than a few months and reduces employment and overall GDP. The National Bureau of Economic Research (NBER) defines a recession as a significant and widespread drop in activity that lasts for more than a few quarters. A downturn is typically accompanied by increased unemployment and a decrease in GDP growth for two consecutive quarters.
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