Are we in a Recession?

How can we tell if the economy is in a recession? If there’s an easy answer, you wouldn’t have ended up on this page because you already know it! Instead, you’re likely looking for a clearer picture of the economy after hearing conflicting information from multiple sources. But what do those sources say? This blog post offers an overview of four indicators used to determine if we are indeed in a recession: unemployment rate, gross domestic product (GDP), personal income, and industrial production.

Defining Recession

A recession is generally considered to be two consecutive quarters of economic decline. The term can also be used to describe any period of negative growth. 

The current global recession has been ongoing since 2008 with no end in sight and has affected nearly every country on the planet. The cause of this downturn was most likely related to the housing market crash, which caused many people to lose their homes and jobs. This created a domino effect that led to more people losing their jobs and less money being spent. Thus causing a downward spiral that continues today.

Historical Recessions

There have been 11 recessions since 1919, the most recent being 2007-2009. Four economic indicators help you determine if the U.S. is currently in a recession: employment, industrial production, retail sales, and real income. If any of these numbers are down for consecutive quarters, then it’s likely that the U.S. is experiencing another recession.

Causes of Recessions

Recessions occur when the demand for goods and services decreases and is not met by the supply. This leads businesses to cut back on production, reducing consumption and spending. People spend less and are left with less money to save or invest. The cycle continues until it reaches a bottom (called recovery). 

Reconsidering debt habits: One of the first things that may need to be adjusted during a recession is our spending habits. Review how much debt you have, how much you can afford per month, and what you could do without. Consider lowering your living expenses by moving into an apartment instead of buying a house or opting for public transportation over driving your car daily.

A slowing economy is just what the Fed ordered

The Fed is at least partially responsible for the current economic situation. In the wake of the 2008 financial crisis, they lowered interest rates to unprecedented levels to stimulate lending and spending. The resulting increase in demand caused companies to hire more people, leading to higher wages and higher levels of consumption. But now that the economy is on firmer footing, it’s time for them to reverse course by raising rates and slowing down lending activity. This will help keep inflation in check and make room for more sustainable economic growth.