According to the definition generally adopted by the economic press, an economy enters into recession after two consecutive quarters of declining real GDP (Gross Domestic Product). However, the U.S. NBER (National Bureau of Economic Research) takes a subtler and more realistic view, considering a recession as a period of falling economic activity spread across the economy, lasting more than a few months, normally visible not only in real GDP, but also in real GDI (Gross Domestic Income), employment, industrial production, and wholesale-retail sales.
Recessions start at the peak of a business cycle and end at the trough. The duration of the recession equals the length of the period between a peak and a trough.
During an expansion, economic activity rises substantially, spreads across the economy, and usually lasts for several years. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion.
Expansions start at the trough and end at the peak of the business cycle. The duration of the expansion equals the length of the period between a trough and a peak.
The term depression is commonly used to define a particularly severe period of economic weakness. Where a recession is a normal part of the business cycle, lasting for a period of months, a depression is an extreme fall in economic activity lasting for a number of years.
Some economists speak of depression to refer only to the period when economic activity is declining. The more common use, however, also encompasses the time until economic activity has returned to close to normal levels.
The NBER does not separately identify depressions, and illustrates the difficulties raised by this concept by showing how the Great Depression, the best known instance of a prolonged and deep U.S. economic downturn generally regarded as a depression that occurred in the 1930s, could be differently dated depending upon the analyst's vantage point. If the term Great Depression is used to mean the period of exceptional decline in economic activity, it refers to the period from August 1929 to March 1933. If it is used to also include the period until economic activity had returned to approximately normal levels, most economists would judge that it ended sometime in 1940 or 1941.