Does Two Consecutive Quarters of a Decline in GDP Signify a Recession?

Not necessarily, despite popular use of this “rule of thumb,” which emerged in 1974 and is easy to identify and explain. After all, gross domestic product (GDP) is easy to understand as a comprehensive measure of all goods and services produced in an economy during a given period. This definition of a recession is often also referred to as a “technical recession” because it differs significantly from a more nuanced and detailed view of business cycles. 

There are drawbacks to relying on the two consecutive quarters of GDP decline rule to describe a recession.

1. Recessions can vary in length (i.e., duration), sometimes lasting less than two quarters. For example, the recession of 2020 only lasted a few months by many judgments, but was considered a recession nonetheless due to its intensity (i.e., depth) and widespread nature (i.e., diffusion).
2. GDP alone may not be the best metric since it is frequently revised, often after the fact. Revisions often go back years as more complete data become available; this is especially true for benchmark revisions, which may be substantial.
3. As a quarterly metric, GDP lacks the resolution to identify business cycle turning points precisely on a monthly basis. In the short term, GDP measures can also deviate from other key metrics of the health of the economy such as employment or capacity utilization. 

Most economists prefer to use a wider set of economic indicators to judge whether an economy is in recession—or not. Increasingly, others have taken the lead of the National Bureau of Economic Research (NBER) in the US to designate business cycle “dating” committees that consider a variety of metrics when determining the actual start date of a recession.