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Explainer-How do you define a recession? Let us count the ways -Breaking


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WASHINGTON (Reuters] – Chief executives are concerned that the United States, which is the largest economy in the world, may slip into recession. This concern has been growing for the Federal Reserve as well as the Administration of President Joe Biden.

It is difficult to define a recession and predict when it will occur.

What is a RECESSION?

Recession is usually defined as the two consecutive quarters when the economy shrinks rather than grows. But there are plenty of caveats.

For example, COVID-19’s pandemic recession lasted only two months. This is the longest cycle ever recorded.

Graphic: The COVID-19 recession and high frequency economic indicators –

Who determines RECESSION

The National Bureau of Economic Research in the United States makes the official call. This can sometimes take as long as one year.

The private non-profit research group defines’s%20traditional%20definition,more%20than%20a%20few%20months recession as a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.”

While each of three criteria – depth, diffusion, and duration — “needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another,” the group says.

What is the SAHM Rule?

Other methods of determining if a recession is underway, such as the employment-based Sahm rule. It was created by Claudia Sahm (former Fed economist), to signal the onset and severity of recessions more rapidly than the official arbiters.

According to the rule, a recession is declared when the average 3-month moving unemployment rate goes up by half a point over its lowest.


There are many types of recessions. These can be severe but short-lasting, as in the case of the pandemic recession that lasted for two months and resulted in 22 million job losses. The unemployment rate jumped briefly from 14.7% to 14.7%.

These can cause severe and lasting damage, such as the Great Recession, or the Depression. It may take a decade for the labor markets to recover.

Analysts and economists recently raised concerns that the United States may be in a shallow recession. The economy will contract marginally for a brief time and only slightly.

Graphic: US job breakdown during the COVID recession –

WHAT IS A GROWTH RESSION? Analysts and economists are also discussing the idea of a “growth recessive,” where economic growth is slower than the U.S. trend of 1.5-2 percentage points annually, but it does not decrease, as unemployment rises. Some Fed policymakers have predicted this scenario in their forecasts for the week.


An inverted yield curve is a situation where the market rate of short-term borrowing exceeds the longer-term lending rate. This can be a warning sign that there may soon be a recession.

The yield curve inverted at least once before each recession. This alarm bell rang on June 13, when it happened.

Research from the Federal Reserve argues that the most widely followed yield-curve measure, the gap between yields on the two-year and the , doesn’t actually predict much of anything; a better gauge is the gap between three-month and 18-month rates, which has not inverted.


Alarms have also been raised by the recent stock market sell-off. Investment research firm CFRA says that nine out of twelve bear markets or drop of over 20% since 1948 were preceded by recessions.

Fed’s course is off-track again

Sahm rule enters Fed lexicon

US job breakdown during the COVID recession

The COVID-19 recession and high frequency economic indicators

Recession template (Copy) (Copy)