What Is A Recession?

By James Lavorgna, J.D., LL.M, CWM, CTEP, CFP

Published in Advisor Perspectives

Recession. Are we in it? Are we heading for it? What is the answer?

Since most people don't know the definition of a recession, and many people who claim to get it wrong, a precise definition will provide a little relief from all the confusion. You can sleep better knowing that the data shows, among other things, it is far from clear that we are now in a recession.

Here it is in its full, unabridged form.

What Is a Recession?

I am amazed at the amount of people who are predicting that this country is headed for a recession. I'm amazed, because these people obviously have not heard about all the people who say we are already in a recession. This leads me to believe that many people do not actually know what a recession is. Not only the general population, but newscasters and politicians seem to be unaware of the basic definition of a recession.

In macro economic terms, a recession is a period of slowing economic growth measured by a decline in Gross Domestic Product (GDP) for two or more consecutive quarters. GDP measures all goods produced in this country. This includes not only goods and services made and provided by Americans, but goods and services produced by foreign firms within the borders of the United States. Contrast this with Gross National Product (GNP), another widely used economic indicator. GNP does not include goods and services produced by foreign companies, but does include goods and services produced by U.S. firms operating in foreign countries. Read More...

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