Last updated on June 17, 2022
A recession is a period of declining economic performance across an entire economy that lasts for several months. Whether we are in a recession or not is measured through a multitude of factors. This includes a decline in GDP, a decline in income, a rise in unemployment, a stagnation of production, or a decline in consumer spending.
No matter how terrible the word ‘recession’ may appear, recessions are a normal part of the business cycle of a capitalistic economy. The decline is very much needed before economies can recover and grow again. This has been a constant pattern since the Industrial Revolution.
Who decides if we are in a recession?
The National Bureau of Economic Research does and states that we are currently not in one. According to this organization, the last recession in the United States took place between February and April of 2020.
However, supply and demand disruptions, a tense conflict between Russia and Ukraine, climate change, the reversal of globalization, increasing inflation rates, as well as the ever-changing battle between Covid cases are dark, stormy rain clouds looming over our economy, all forecasting decline soon. Deutsche Bank was among the first major banks to forecast a ‘mild’ recession, with data pointing towards the start occurring later this year to early next year.
What would a recession look like?
According to the NBER, prepare for it to last eleven months. You may lose your job during this time due to the rise of unemployment. Businesses are bound to shut down. For those not prepared, assets such as properties can be lost. It’s a cycle of revenue not being in one place or another, causing a domino effect in the relationship between producer and consumer.
However, on the other side of the tunnel, the end of a recession brings new growth. Recessions occur when economies are at their peak and expansion occurs. Once at the top, the economy will plummet and hit a trough before then rising back up and reaching a new high. Visualize a wave-like pattern. A new high signifies more opportunities. Growth in employment rates, spending, as well as overall consumer confidence allows the economy to keep growing. At least until once again, it hits an all-time high and falls for the cycle to continue.
Whether we are in a recession now is up for debate. However, the consumer must prepare for the economic downturn which is already upon us or soon to be.