Economy and interest rates · updated October 21, 2026
What is a recession and how do you know one has started
A recession is a period in which the economy produces less: companies sell less, invest less and lay people off. The simple rule used in the press: two quarters in a row of falling GDP make a technical recession.
How it works
In Europe the usual rule is two consecutive quarters of GDP falling from the previous quarter. In the US, recessions are dated by a committee of economists (the NBER), based on several measures: jobs, income, output, sales. That is why US recessions are announced officially months late.
Worked example
GDP falls 0.3% in the first quarter and 0.5% in the second, each compared with the quarter before.
The economy is in a technical recession. How severe it is depends on how much and for how long output falls.
Worth knowing
Stock markets usually fall before a recession and start recovering before it ends, because they look at future profits. In 2020, the pandemic recession was very deep but short, and the S&P 500 hit a new high in August, five months after the crash.
When a recession can fool you
The two-quarter rule is not law: an economy can be in recession with one slightly positive quarter between two declines. The market does not wait for the data: by the time a recession is announced officially, prices have been falling for months.
Related terms
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Questions about a recession
What happens to stocks in a recession?
They usually fall, especially cyclical companies (cars, construction, banks). Utilities, food and healthcare usually hold up better.
How long does a recession last?
In the US, recessions since World War II have lasted about 10 months on average. The 2008-2009 crisis lasted 18 months, the 2020 one only two.
These explanations are for information only. They are not a recommendation to buy or sell.
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