Recession

A widely used rule of thumb, common in UK and European reporting, is that an economy is in a technical recession after two consecutive quarters of falling real GDP. In the United States, recessions are dated by the Business Cycle Dating Committee of the National Bureau of Economic Research, a private non-profit body, which defines a recession as a significant decline in economic activity that is spread across the economy and lasts more than a few months. It looks at monthly indicators such as employment, real income, consumer spending and industrial production, not just GDP.

Recessions usually bring falling company profits, rising unemployment, more defaults on loans and bonds, and interest rate cuts by central banks. Share prices often fall, but markets look ahead, so they frequently start declining before a recession is confirmed and begin recovering while economic news is still bad. Official confirmation typically comes months after a recession begins, which makes it hard to act on. For long-term investors, the practical defences are an adequate emergency fund, a mix of assets they can live with in a downturn, and avoiding being forced to sell at low prices.