What exactly is a recession? Economists say odds of one in the US are high.
Rachel Barber, USA TODAY
4 min read
A report showing the U.S. economy contracted at the start of the year as businesses raced to import goods ahead of President Donald Trump's widespread tariffs gave fuel to forecasts the economy is likely to cool and could potentially tip into a mild recession.
But what exactly is a recession?
What is the definition of a recession?
The National Bureau of Economic Research (NBER) defines a recession as a “significant decline in economic activity that is spread across the economy, lasting more than a few months.” Three criteria – depth, diffusion, and duration – need to be met individually to some degree to formally identify a recession, according to the NBER.
“Most of the recessions identified by our procedures do consist of two or more consecutive quarters of declining real GDP, but not all of them,” NBER explains on its website.
What are the odds of a recession?
The odds of a recession are "very high," Steve Blitz, managing director of global macro strategies and chief U.S. economist at Global Data previously told USA TODAY. In early April, Trump threatened an additional 50% tariff on goods imported from China if it did not withdraw its retaliatory tariffs after the president put levies on nearly every country in the world.
While Trump's tariff plans have changed several times since then, experts expect these decisions to ultimately bring higher costs and lay offs to American workers as consumer and business sentiment falls. The tariff talks have also frequently rocked financial markets. After Trump's tariffs announcement in early April, the stock market lost about $6.6 trillion over a two day span — the largest two-day wipeout of shareholder value on record, according to MarketWatch.
Trump's Treasury Secretary Scott Bessent downplayed the stock market drop at the time in an interview with NBC News' 'Meet the Press' Sunday, pointing to data released the previous Friday showing higher-than-anticipated job growth in March.
"We could see from the jobs number on Friday, that was well above expectations, that we are moving forward, so I see no reason that we have to price in a recession," Bessent said.
But one look at social media shows many Americans fear we have already entered one. Still, TikToks and stock prices don't officially determine when the country enters a recession, and the word does have an actual definition worth knowing.
Who decides when the US is in a recession?
Eight economists who serve on the Business Cycle Dating Committee within the National Bureau of Economic Research (NBER), a nonprofit research organization not affiliated with the federal government known, make the call.
They are appointed by the NBER president James Poterba, who has held the position since 2008, after consultation with committee chairs and the nonprofit’s board of directors.
The committee has maintained a chronology of U.S. business cycles since its creation in 1978. Without an alternate chronology compiled or published by the U.S. government, the committee became the go-to source for formally identifying recessions.
NEW YORK, NEW YORK - APRIL 07: Traders work on the floor of the New York Stock Exchange during morning trading on April 07, 2025 in New York City. All three major stock indexes dipped again at the opening of the stock market for the third straight day with the Dow Jones dropping over 1000 points and the S & P 500 nearing bear market territory amid U.S. President Donald Trump's sweeping new tariffs and other countries' retaliations. (Photo by Michael M. Santiago/Getty Images)
How fast does the committee decide if there is a recession?
The NBER identified the recession in June of that year, months after it began. It took another year before the NBER announced in July 2021 that the recession had ended in April 2020.
NBER says its other recession determinations have taken between four and 21 months. There is no fixed timing rule. The committee waits until it’s confident to make a confirmation, according to NBER.
NEW YORK, NEW YORK - APRIL 07: Traders work on the floor of the New York Stock Exchange during morning trading on April 07, 2025 in New York City. All three major stock indexes dipped again at the opening of the stock market for the third straight day with the Dow Jones dropping over 1000 points and the S & P 500 nearing bear market territory amid U.S. President Donald Trump's sweeping new tariffs and other countries' retaliations. (Photo by Michael M. Santiago/Getty Images)
What does the stock market tell us about recession probability?
The markets rallied at the end of April amid indications from the Trump administration that trade deals were imminent and some tariffs wouldn't be as extreme. But investors have been wary and stocks have been volatile. As of April 7, the Dow and S&P 500 had dropped more than 10% from their recent highs, entering correction territory. Meanwhile, the Nasdaq fell more than 20% from its recent high, landing in bear market territory. And following the late April upswing, stocks declined again on the news that GDP had shrunk in the first quarter of the year.
Although Trump’s reciprocal tariffs are unprecedented in recent history, the S&P 500 has entered correction territory 56 times since 1950, according to data compiled by Truist Financial experts.
Of those 56 times, stocks were higher a year later about 88% of the time, the data revealed while noting that past performance does not guarantee future results. In the seven times stocks had declined, six coincided with a recession – showing markets are influenced by the economy's overall trajectory.
“Our base case at this point is still not recession but we would say that recession risk is really much higher than it had been for some time now,” Keith Lerner, chief market strategist and co-CIO for Truist, told USA TODAY in early April.
Reach Rachel Barber at rbarber@usatoday.com and follow her on X @rachelbarber_
