Recession
A decline in activity, often defined as two consecutive quarters of falling GDP.
18 months
Great Recession
2 months
2020 recession
0.5 point
Sahm rule threshold
Notitia
A decline in activity, often defined as two consecutive quarters of falling GDP.
The rule of thumb calls a recession two consecutive quarters of falling GDP. In the US the official dates are set after the fact by the NBER committee, which also looks at jobs, income, industrial output and sales: a recession is a significant, broad and lasting decline in activity.
An inverted yield curve, PMIs stuck below 50, rising jobless claims, tighter credit and wider credit spreads often precede recessions. The Sahm rule flags a recession when the three-month average unemployment rate rises 0.5 point above its low of the previous twelve months.
Stocks usually fall before a recession and rebound before it ends: the market looks ahead. Government bonds gain from rate cuts, and defensive sectors (health care, staples, utilities) hold up better than cyclicals.
The rule signals a likely recession, to be confirmed by other indicators.
According to the NBER, the 2020 recession lasted only two months (March-April), against eighteen for the 2007-2009 Great Recession. US unemployment nonetheless reached 14.7% in April 2020.
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