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Recession

Candlefocus Editor

Recession is an economic phenomenon that has the potential to cripple the global economy. It is a sustained and significant decline in economic activity, with widespread economic and business contraction lasting at least six months, or in some cases even longer. A recession is typically defined as two consecutive quarters or more of negative economic growth in a broad measure of the national economy, such as real gross domestic product, as measured by the government. During a period of economic recession, consumers, businesses and governments all reduce their spending, and employment and output typically decline.

Various financial indicators can help to predict when a recession will hit, including declining stock prices and an inverted yield curve. An inverted yield curve as observed in the United States was a leading indicator of the past 10 recessions and while it hasn't always been 100% accurate, it still serves as an important sign. The yield curve becomes inverted when short-term interest rates are higher than long-term interest rates, which signals a possible recession is upcoming.

During a recession, economic contraction can has a reverberating effect on the nation; unemployment rises and business output decreases, particularly in manufacturing and services sectors. Falling output in these sectors means reduced demand for goods and services, forcing layoffs of employees and decreases in earnings. The decrease in earnings among consumers signals a decrease in consumer spending, further compounding the economic contraction.

Governments can respond to recessions using both fiscal and monetary policies. Fiscal policy involves changes in government spending and taxation to stabilize the economy, while monetary policy uses the money supply and interest rates to encourage banking and credit activity that gives the economy a boost. These responses are designed to limit the risks of the recession and help to bring about economic recovery as quickly as possible. However, these policies don’t always have the desired effect, and sometimes the recession continues for longer than expected. Moreover, even when recovery does eventually take hold, it often takes some time for unemployment to decrease, meaning that for many people, the early stages of the recovery can feel like a continuous recession.

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