What Is a Recession and How to Prepare?

WRITTEN BY DAN BLYSTONE | UPDATED SEPTEMBER 12, 2022

What Is a Recession?

While there is no universally accepted definition of a recession, the most standard indicator of a recession is a decline in Gross Domestic Product (GDP) for two consecutive quarters. In other words, when the value of all the goods and services produced in a country has fallen for six straight months.

What Happens in a Recession?

During a recession, the economy falters. Declines can be seen across many key areas.

• Employment. The unemployment rate typically increases during a recession as companies lay off workers to reduce their costs.
• Consumer demand. Retail sales decrease during a recession as consumers have less disposable income. This in turn impacts businesses, forcing them to reduce costs.
• Economic output. As the cost of raw materials rises during a recession, businesses may scale back production, causing a slowdown in manufacturing.

Individuals living through a recession may see their wages flatten or fall as employers try to cut expenses. The cost of living can also increase as a result of inflation. With fewer jobs available during a recession, it could be harder to find employment.

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