What marks a recession in an economy?

A recession in an economy is characterized by an economic slowdown, which typically includes high unemployment rates and low consumer confidence. During a recession, economic activity declines, often measured by a drop in the gross domestic product (GDP) for two consecutive quarters. This downturn leads to reduced spending by consumers and businesses, creating a cycle that further exacerbates the lack of confidence in the economy.

High unemployment arises because businesses may need to cut costs due to dwindling sales and reduced demand, often resulting in layoffs. Additionally, with lower consumer confidence, individuals are less likely to spend money, fearing job loss or economic instability. All of these factors contribute to the overall contraction of economic activity seen during a recession.

In contrast, high levels of consumer spending and investment signify a healthy economy, which would not indicate a recession. Similarly, a consistent increase in GDP and rising corporate profitability would suggest economic growth rather than contraction. Therefore, the characteristics of high unemployment and low consumer confidence provide a clear indicator of a recession.