An economic period marked by two consecutive quarters of falling GDP is commonly described as a recession. GDP, or gross domestic product, measures the value of goods and services produced in an economy, so repeated quarterly contraction is a widely used shorthand for an economic downturn.
The two-quarter rule is useful because it is simple and easy to apply, but it is not a universal official definition. In the United States, the National Bureau of Economic Research dates recessions using a broader assessment of economic activity, including employment, real income, industrial production, and sales. A recession can therefore be declared without two consecutive quarters of falling GDP.
Recessions often involve weaker consumer spending, reduced business investment, layoffs, tighter credit, and declining confidence. They are not the same as depression: “depression” generally refers to a much deeper and longer-lasting contraction.
The term also differs from inflation and deflation. Inflation means prices are broadly rising, while deflation means prices are broadly falling. Either can occur during a recession, but neither word describes the overall contraction itself.