When the gross domestic product (GDP) falls for two consecutive quarters, all economists agree that we are in a recession. Despite the fact that unemployment may be high in many areas of the country and spending and manufacturing may have fallen off, technically, until the folks at the National Bureau of Economic Research state that we are indeed in a recession, politicians and economists can deny it, because the NBER says it is not so.
The NBER base their declaration on what is happening economically on a national scale. Two or more quarters of economic decline across the country prompts the NBER to declare that we are indeed in a recession.
Since the United States is recognized in the rest of the world as having the strongest economy, when we go into recession, it has an economic impact around the globe.
To pull any economy out of recession, governments attempt to revive economic growth by increasing the supply of money, cutting taxes and generating more spending.
Historically, a recession usually can last anywhere from 6 to 18 months. When it lasts for a longer period without some turnaround, an economic depression is declared. In any prolonged economic decline, stock prices fall, real estate prices tumble and unemployment rates rise.
A significant drop in the stock market can hasten a recession. The failure of significant investment management firms or banking houses can also put the economy on a downward spiral. Even natural disasters or the spread of disease in epidemic proportions can impact an economy.
Here’s a Reader’s Take on Recession
Recession is a word we have been hearing a lot lately. The United States is currently in the grips of a recession and it has had an effect on millions of people. But, what is it exactly?
A recession, in general terms, is the gradual slowdown of economic activity over a long period of time. Experts usually agree that a confirmed method of identifying a true economic recession is through measuring a country’s GDP or Gross Domestic Product. If the GDP is negative for more than 2 consecutive quarters then you have a recession on your hands.
There are often predictors of a recession. None of them are entirely reliable but the combination of several factors can give you some idea of whether or not the country is headed in the direction of a recession.
One of the indicators is a major dive in the stock market. This is something that was seen dramatically in the United States. It is good to note that in only about 50% of the cases of stock market dives have come about AFTER a recession has begun.
Another indicator is a decline in home prices. When home values dip and consumers have too much personal debt this can contribute and be an indicator of an impending recession.
A successive 3 month change in the unemployment rate and an increase in jobless claims is also another factor.
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