What is a Recession
A recession is a significant decline in economic activity that goes on for more than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade.
The technical defintion of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP).
Causes of a Recession
Recession is a normal, albeit unpleasant, part of the business cycle. However, one-time crisis events can often trigger the onset of a recession. The global recession of 2009 brought a great amount of attention to the risky investment strategies used by large financial institutions, along with the global nature of the financial system. As a result of the wide-spread global recession, the economies of virtually all the world's developed and developing nations suffered significant setbacks. Numerous government policies were implemented to help prevent a similar future financial crisis as a result. Typically, a recession lasts from six to 18 months, and interest rates usually fall during these months to stimulate the economy.
Recession Predictors and Indicators
There is no reliable way to predict how and when a recession will occur. But, according to many economists, there are some generally accepted predictors that. when they occur together, may point to a possible recession. First, asset prices will begin to decline. This includes home prices and other financial assets like stocks. Another possible predictor is unemployment; generally speaking, a three-month change in the unemployment rate and initial jobless claims will point to a recession. An inverted yield curve is also another predictor. When long-term yields fall below the short term ones (the 10-year vs. the 3-month Treasury securities), a recession will occur. Conversely, a positively sloped curve (in the opposite direction) will signal inflationary growth.
Since 1970, all the recessions that have taken place in the United States up through 2017 have followed an inverted yield curve.
A recession is a significant decline in economic activity that goes on for more than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade.
The technical defintion of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP).
Causes of a Recession
Recession is a normal, albeit unpleasant, part of the business cycle. However, one-time crisis events can often trigger the onset of a recession. The global recession of 2009 brought a great amount of attention to the risky investment strategies used by large financial institutions, along with the global nature of the financial system. As a result of the wide-spread global recession, the economies of virtually all the world's developed and developing nations suffered significant setbacks. Numerous government policies were implemented to help prevent a similar future financial crisis as a result. Typically, a recession lasts from six to 18 months, and interest rates usually fall during these months to stimulate the economy.
Recession Predictors and Indicators
There is no reliable way to predict how and when a recession will occur. But, according to many economists, there are some generally accepted predictors that. when they occur together, may point to a possible recession. First, asset prices will begin to decline. This includes home prices and other financial assets like stocks. Another possible predictor is unemployment; generally speaking, a three-month change in the unemployment rate and initial jobless claims will point to a recession. An inverted yield curve is also another predictor. When long-term yields fall below the short term ones (the 10-year vs. the 3-month Treasury securities), a recession will occur. Conversely, a positively sloped curve (in the opposite direction) will signal inflationary growth.
Since 1970, all the recessions that have taken place in the United States up through 2017 have followed an inverted yield curve.
