A recession is a period of economic slowdown, usually associated with falling incomes and increased unemployment. It is a normal part of the business cycle and, while governments use money and spending policies to try to limit their impact, they occur at least once in every mature economy, according to the International Monetary Fund (IMF).
Recessions can be triggered by a number of factors. One is an increase in the price of commodities such as oil and metals that are used to make goods and services. This can push up the cost of production and reduce consumer demand, which in turn can cause companies to lay off workers, which further lowers demand and can create a negative, self-perpetuating cycle.
The National Bureau of Economic Research (NBER), the organization that maintains a chronology of business cycles and defines when a recession starts and ends, takes a broader view of activity than just gross domestic product (GDP). It uses many indicators such as jobless claims and measures of consumer confidence to define a recession. This more comprehensive approach can help us understand how a recession may play out in our lives. By Alex Panas and Kelsey Robinson, senior partners in McKinsey’s Boston office; Asutosh Padhi, a partner in the Chicago office; Ida Kristensen, a senior partner in the New York office; Stephan Gorner, a senior partner in the Toronto office; and Sven Smit, a senior partner in the Amsterdam office and chair of the McKinsey Global Institute.