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Economic Recession
What Is an Economic
Recession?
Kyler
If
you’re living in America right now, you’re probably being inundated with news
article after news article about an impending economic recession in the US.
Many
countries, like Germany, Italy, the UK, Brazil, Argentina, Singapore, South
America, and Russia, are also experiencing economic contractions placing them
at risk of recessions as well.
So,
with economic recessions more relevant than ever, some of you may be wondering;
what is an economic recession?
Generally
speaking, an economic recession is exactly what it sounds like when you pick
the words apart.
The
economy recedes. There are some technicalities, though.
For
example, in the US a recession is defined in regards to GDP, the stock market,
real income, production, retail, and the like. Typically, it’s for a period of
a few months.
The National Bureau of Economic Research uses the
phrasing: “a recession is a significant decline in economic activity across
the economy.”
But
more to the ins and outs, another example would be the UK’s definition; simply
negative economic growth for two consecutive financial quarters.
So,
put simply, a recession is when the economy has shown a pattern for stagnating
to shrinking for extended periods of time.
Recessions
Can Have Shapes
Recessions
are typified normally by shape. Though they’re named after letters, determined
by how the GDP percentage change graph looks.
V- Shaped
Relatively
brief with sharp declines and recovery.
U-Shaped
Longer
decline and GDP shrinkage with slower recovery.
W-Shaped
Decline
with some growth before declining again (and then later recovery).
L-Shaped
A
recession during which the economy does not return to its pre-recession state
for a really long time–if it recovers at all.
Yield
Curve Inversion
If
you’ve been reading about what economists are calling America’s impending
recession, you’re probably on high guard.
Well
that, and you’ve probably seen “yield curve inversion” thrown around as the
prime indicator for a possible recession.
It
can be boiled down to how confident investors are in the economy.
They
will invest in long-term bonds opposed to short term ones when they are more
confident that the economy will provide a better return on investment a long
time from now, rather than in a short time.
When
that happens, it causes a yield curve inversion; signaling a lack of confidence
in the economy as is.
The
2001, 1991, and 1981 US recessions were preceded by yield curve inversions.
With
respect to the US; there’s also corporate insiders selling a lot of their stock
in light of the US-China trade war developments–which signals a lack of
confidence in the stock market.
Other
Recession Predictors
A
lot of recession predictors are also, unsurprisingly, its consequences.
Unemployment rate changes, high debt, and commodity prices hikes are all
indicators of a recession.
All
of these are combined with marked increases in income inequality–something a
recession likely will reinforce as the negative impacts are felt far more by
those without a lot of funds put away.
What
Does a Recession Mean for You?
If
you’re an average American, you’re probably not wealthy enough to even begin
getting involved with treasury bonds and the stock market in a very meaningful
way.
In
light of the government shutdown that lasted into January 2019, it came out
that almost 80% of US workers live paycheck to paycheck.
While
it might not necessarily be true that 100% of the stocks lie in the hands of a
few, it is safe to say that the vast majority of stock ownership goes to the
well-off.
So,
we would be forgiven if yield curve inversions and insider selling goes over
our heads. Why wouldn’t it? It doesn’t directly affect most of us. Until a
recession happens.
On
the ground level, one can expect unemployment and layoff spikes as corporations
move to save money.
By
taking away the primary income source from the people, retail sales will also
drop as the people attempt to save what little money they have left.
You’re
going to see less corporate investment (or any investment, really) as well.
Really,
money just isn’t going to be changing hands as much, and many Americans on the
ground level may end up in a really bad spot.
Recessions
can open the door for anti-competitive company mergers as well – upending and
defeating the entire purpose of the purported “free market” more than it has
already been undermined.
In
regards to unemployment, its long-term effects likely won’t be seen for a long
time after the recession, and normally recovers long after a recession has
ended.
Impending
recessions inspire a lot of existential dread. Rightly so. Don’t worry, we have
some kittens and ice cream here.
Kyler is a content writer at Sporcle. He currently spends
most of his time hitting the university grind while drinking black coffee like
water.
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