What typically signifies a recession in economic terms?

A recession is fundamentally characterized by a decline in economic activity across the economy, which is most commonly measured by a contraction in the gross domestic product (GDP). Specifically, a recession is typically defined as two consecutive quarters of negative GDP growth. This indicates that the overall economy is shrinking for a sustained period, leading to reduced consumer spending, investment, and production.

In contrast, a rise in stock market prices usually suggests investor confidence and is not necessarily indicative of a recession. While stock prices can move independently of the overall economic environment, they often reflect expected future performance rather than current economic conditions.

Three consecutive quarters of economic growth would suggest that the economy is expanding, making it the opposite of a recession. Economic growth implies recovery and a general uptrend in economic indicators.

Lastly, a sudden increase in consumer spending, while a component of economic growth, does not signify a recession; rather, it may be a sign of economic recovery or expansion. For a recession, a sustained decline rather than a temporary change is critical, reinforcing the idea that economic health can be measured by consistent negative performance over a designated period.

Thus, two consecutive quarters of economic decline is the clearest and most widely accepted indicator of a recession.