Recession

A significant, widespread, and prolonged decline in economic activity, typically defined as two consecutive quarters of GDP decline.

What Is a Recession?

A recession is a significant, widespread, and prolonged decline in economic activity. The common rule of thumb is two consecutive quarters of declining GDP, though the official determination in the U.S. is made by the National Bureau of Economic Research (NBER), which considers a broader set of indicators including employment, industrial production, and retail sales.

Warning Signs of Recession

• Inverted yield curve: When short-term Treasury yields exceed long-term yields, a recession has historically followed within 12-18 months. This indicator has predicted every U.S. recession since 1955.
• Rising unemployment: The "Sahm Rule" — recession is likely when the 3-month average unemployment rate rises 0.5% above its 12-month low.
• Declining consumer confidence: Consumer spending drives ~70% of U.S. GDP. When confidence drops, spending follows.
• Corporate earnings decline: When S&P 500 earnings decline for two consecutive quarters ("earnings recession"), a full economic recession often follows.

Recessions and Earnings

During recessions, S&P 500 earnings typically decline 20-30%. Beat rates drop from the normal 75% to 55-65%. Companies guide conservatively, and analyst estimates often don't fall fast enough, leading to more misses. On EarningsShot, adjusting your prediction strategy during recessionary periods — leaning more toward "miss" predictions — can significantly improve your accuracy.