What Is a Recession?
A recession is a period when the economy shrinks instead of grows. People lose jobs, spending falls and many companies earn less.
How a recession is defined
A common rule of thumb is two quarters in a row of falling GDP. In the US, a group of economists makes the official call by looking at jobs, income, spending and production together.
Common signs
- Rising unemployment.
- Falling consumer spending.
- Weaker company profits.
- An inverted yield curve, which has come before many past recessions.
How recessions affect stocks
Stocks often fall before and during a recession, sometimes into a bear market. But markets look ahead and often start recovering before the recession ends. Defensive sectors like consumer staples usually hold up better.
See it in real companies
Open a company to see what it sells and how it makes money.