Recession (Definition)

In business as well as in other economics sub-sectors, the one term that every stakeholder loves to hate is the word that was “Recession”, a term first adopted by Julius Shiskin. This sort of generalized bad feeling towards the word is not a coincidence seeing that it comes with a variety of bad experiences and trying times typically characterized by unpleasant economic situations some of which might include; a spike in the unemployment rate, a colossal uncertain of country’s fiscal matters, and a tremendous financial crisis.

Recession

What is Recession?

Recession is the term used to refer to a critical and serious lowering or drop off of all economic activity of any certain country or nation, having the propensity to endure and last for several durations of time. They can last a few days, a couple of months, or for several years depending on how badly it is, and the nation’s inability to identify and fix its economic problems. For a country to be officially declared as being under a recession, some markers must first take place. Among these markers include – an outcome of a negative GDP (gross domestic product), a decline in retail sales, a sudden heightened level of unemployment claims, among other things. When all these indicators creep into the state of affairs of a nation, one can then expect economics experts and professionals to declare that nation as officially being under recession.

Though the recession is not a great state for a country to be in at any given point, experts believe it is a fundamental part of a regular business cadence and flow and can therefore not be avoided or averted for too long.

Main Causes of Recession

Recession is a very powerful economic phenomenon and when it wants to hit a nation or region, it does so in style and several ways. Some of the most notable ways recession manifests are through deflation, asset bubbles, inflation, economic shock, over debt, and change in technology and innovations.

1. Deflation

Deflation is simply any economic situation where there is a plummeting of assets and other products typically due to construction in demand. An easier way to understand the meaning of deflation is when there are too many sellers offering their commodities out in the market where there are too few buyers who are, to be exact, not very interested in these commodities. What this means is that when there are fewer people making orders (demanding) for a particular product, sellers move to adjust their prices by lowering them in other to make some sales. Deflation generally has a way of inducing a continuum of downtick, resulting in a sheer lagging of economic motions and activities, and of course unemployment.

2. Assets Bubbles 

This scenario is better exemplified in industries such as tech, and real estate. Assets bubbles are defined as a sort of miscalculated out turn of economic event leading to a top of the roof increase in stock and assets. For a much better breakdown in understanding, an asset bubble can be mirrored as an outcome that creeps into a nation’s reality when an asset like stock or bonds rapidly increases in rates without any justifiable backdrop as to why causing stakeholders to hold back on their spending habit.

3. Inflation

Inflation is nothing other than a consistent upward projection of the prices of commodities usually across a particular time spread. While this socioeconomic trend appears to be a common norm in a nation, experts fear that an overdose of it can become detrimental to the entire economy and end up causing a recession. There is, however, one unique way to dictate inflation, and that is by tweaking and controlling of interest rate a responsibility only the central government of ant nation can perform.

4. Economic Shock

This is as its name sounds, a sudden, literal, and usually national catastrophic event which results in serious financial damage. One appropriate example of a sudden economic shock on a global scale is the coronavirus (COVID-19) pandemic which broke out suddenly, unannounced, and unexpectedly – forcing the closures of the entire economy of countries across the globe and handing them a one-way ticket into recession.

5. Too Much Debt

Too much debt has also been credited as having the qualities to bring about a recession. Debt collection by the individuals or citizens of a state can pile up and be accrued over time to the extent that they can not pay badly. This, in essence, becomes a bad debt and has a negative rub off on the whole nation’s economy, as the individuals go from bad to worse being unable to take care of normal things like, pay their taxes, cover for their utility bill, or even manage decent savings. The height of debt usually makes manifest in business closure, filing for bankruptcy et cetera, and if this scenario becomes the same for several top companies and organizations in the said nation, recession inevitably looms.

6. Technological Changes

Prominent changes in technologies and innovations can also invoke recession. Recent technological inventions tend to increase the general productivity of a nation as well as helping it have a more stable, more robust economy going forward. But any snap or offset which triggers the technology in use will also automatically shake the economy. All in all, tech change has a way of inviting productivity of only a few new trends, forcing individuals plying their trade in other to abandon their jobs and focus on the new trend; an action which tells badly on the economy based on low national productivity. An instance down the memory lane is the case of the emergence of the industrial revolution which causes major economic turmoils across different nations because people were abandoning their old jobs to grab a share in the industry.

How Long Can Recession Last?

Recessions, although predictable, are generally of different types and they tend to take different diverse shapes and their durations are distinct. One data collector that has done a tremendous amount of work tracking the lengths of recession is an agency called NBER. According to this recession tracking agency, the average lifespan of a typical recession ensures for eleven months at least. NBER reported after having examined the timelines of recession starting from 1945 -2009. This average duration of 11 months for 1945 -2009, experts reveal, is a step in progress compared to the data from 1854-1919 – whereby the average months of economic recession peaked at 21.6, which is nearly double of their earlier report.

Notable Recession in History

In the last thirty years, there have been three resounding recessions that weighed down on top countries such as the United States and the United Kingdom among others.

1. The Great Recession 

The great recession is one major global economic upheaval that had every the world trembling and quaking at its feet. Economists characterized the event as occurring around December 2007- June 2009. The front-running issue that led to this recession was the then asset bubble in the real estate market. Lasting for only 18 months, the great recession managed untold economically damning disruptions in the global markets (particularly the US market) which was so severe that stakeholders opted to give it its current name, and often compared it the great depression – a much older but equally catastrophic saga in history.

2. The Dot-Com Recession

This short-lived recession was calculated by experts to have begun around March 2001 up to November of the same year. The dot-com recession-era had a huge negative impact on the economy of the United States, and the root cause involved a list of things including – the 9/11 terrorist attack, accountability scandals of top US companies, and partly the racketing of the tech bubble.

3. The Gulf Recession 

This event was set between July 1990- March 1991, and was promoted by the sudden spoke in the price of oil; an outcome which was perhaps made possible because of the commotion of the first gulf war. This recession was quickly overcome following a swift economic resilience by the United States.

Difference Between Recession and Depression

While there are obvious similarities between economic recession and economic depression, significant discrepancies still suffice. Unlike recessions which have a relatively mild impact, economic depressions are usually much more devastating. In a typical economic depressive scenery, you would picture a much more retrogressive GDP, a larger rate of unemployment statistics, to mention only a few things. Also, the impact of depression lingers on for an extended period – well beyond what is obtainable in recessions, and it takes a great amount of time (usually years) for any nation hit be depression to fully heal and return to normal. One notable depression in the annals of history is the great depression of 1929-1933.

Does Recession Affect Me as a Person?

Because recession is being talked about as an issue that affects the economy on a national scale, it becomes easy for people to overlook or neglect the impact an ongoing recession may have on them and their daily living and survival. As an individual residing in a nation that is under recession, there is every possibility that you will be affected in a variety of ways including you losing your current job to the recession, and you discover that it’s hard, maybe impossible, to get a replacement. If you’re lucky enough to keep your job, you might experience a significant pay cut. You find out that there is hunger and possibly starvation everywhere, particularly among the lower class and lower middle class who will surely be among the groups to be hit the hardest. The recession also has the proclivity to disrupt a person’s retirement plans, cause one to lose his home, or other landed properties and personal assets.

How Recession May Affect Companies

Aside from all the horrible things recession can do to the individual, there are also several deterrent effects able to be incurred by businesses and corporate organizations following an outbreak of recession. One of them is financial loss which is mostly weighable in bonds, stocks, commodities, and other assets. For another thing, there is a total decline in sales for business owners and when this reality lingers too long, the end product could result in bankruptcy or untimely closure for the business.

Is The Government Any Help During The Recession?

Periods of economic recession are always a trying time for the government of the suffering nation. Governments naturally react to a recession just to try and ease the economy and maybe stabilize it, but there is only so much they can do to ameliorate the nation from the hardship of such an event. Some popular ways the government might choose to intervene can range from supporting companies that appear to be affected by offering them financial aids such as loans to help them get back on their feet. PPP (paycheck protection program) is a more recent example of the federal government’s effort to assist devastated businesses and reinstate the economy. Palliative and unemployment benefits are other recent examples deployed by governments and other global humanitarian agencies to support COVID-19 worse hit countries and regions in their effort to rejig their economy.

Ways To Avoid Recession 

Even though the recession is one socioeconomic phenomenon that can not be completely avoided, there are tested and proven ways it can be greatly minimized and its harsh impact checked.

1. Slashing the Cost Of Utilities 

This is one major aspect of the economy that affects all and sundry. Consistent upsurges in the total cost of utilities such as water, cable, electricity bills are a notable marker of a country that is going to nose dive into recession. Controlling this aspect of the economy is very fundamental to curbing recession, and Yale economists know this which is why they authored a book titled “Law and Macroeconomics: Legal Remedies to Recessions”, where they make a case for stakeholders to properly run this subsector if they want to avert the encroachment of future recession.

2. Reduction in Tax from Payrolls 

Slashing the amount of taxes collected from the team member’s salary should also be looked into as this will go a long way in ensuring a healthy economy free from recession, according to expert economists. Employees lose millions from taxes accruable from their paycheck and this mostly involves a compulsory deduction of certain, usually large, amounts of money from their salaries which then goes to the government or other tax agencies. The result of these deductions is massive and tends to wear down on these employees, leaving them with less than enough returns to take care of their bills, and family needs.

3. Jobs Creation During Unemployment Crisis

Creating jobs during the times when scores of people are filing for unemployment claims can be a very effective way to avert impending recession. The government should not only strive to create jobs during this period but to also create and sponsor programs that offer grants, loans, and other helpful instruments to try and help the different categories of people who may have been stranded and rendered jobless by the certain hard times pre-recession.

REFERENCES

Business Insider.”What is a recession? How economists define periods of economic downturn.” https://www.google.com/amp/s/www.businessinsider.com/what-is-a-recession%3famp

Forbes. “What Is A Recession?” https://www.forbes.com/advisor/investing/what-is-a-recession/

Investopedia. “How Do Asset Bubbles Cause Recessions?” https://www.investopedia.com/articles/investing/082515/how-do-asset-bubbles-cause-recessions.asp

Vox. “The government failed to stop the last recession. It can prevent the next one.” https://www.vox.com/future-perfect/2019/3/29/18279205/recession-unemployment-inverted-yield-curve-stimulus-policy

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