Recessions
A broad decline in activity, declared long after it starts. Knowing the definition is more useful than trying to predict the date.
A recession is a significant, broad-based decline in economic activity lasting more than a few months. You will often hear it defined as two consecutive quarters of falling output. That is a rule of thumb, not the definition used by the economists who formally date them.
The dating problem
The committee that dates US business cycles waits until the data is complete and revised enough to be confident. The announcement that a recession began often arrives many months after the start date it names — sometimes after the recession has already ended.
Which means nobody gets a signal at the time. You are always living through an ambiguous period that will be labelled later.
What typically happens
- Hiring stops before firing starts. Job openings fall first; layoffs come later.
- Unemployment rises with a lag, and keeps rising after output has bottomed.
- Central banks cut rates, which is why bonds often do well when equities do badly.
- Markets move before the economy. Share prices typically fall before a recession is visible and recover before it ends.
If markets turn before the data confirms anything, then waiting for confirmation to act means acting after the move. This is not an argument for prediction — it is an argument for having a plan that does not depend on calling the turn.
Why forecasting them is so poor
Recessions are caused by things that are, by nature, hard to see coming: a shock, a policy error, a chain of defaults that begins somewhere private. If they were reliably forecastable, policy would prevent them, which is part of why the forecastable ones are rare.