recession 2

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In economics, a recession is a general slowdown in economic activity over a long period of time, or

abusiness cyclecontraction.[1][2] During recessions, manymacroeconomic indicators vary in a similar

way. Production as measured by Gross Domestic Product(GDP), employment, investment

spending, capacity utilization, household incomes, business profits and inflationall fall during

recessions;bankruptcies and the unemployment rate rises.

Governments usually respond to recessions by adopting expansionary macroeconomic policies, such

asincreasing money supply,increasing government spending and decreasing taxation.

Identifying

In a 1975 New York Times article, economic statistician Julius Shiskin suggested several rules of thumbfor identifying a recession, one of which was "two down quarters of GDP".[3] In time, the other rules of

thumb were forgotten,[4] and a recession is now often defined simply as a period when GDP falls (negative

real economic growth) for at least two quarters.[5][6]Some economists prefer a definition of a 1.5% rise in

unemployment within 12 months.[7]

In the United States the Business Cycle Dating Committee of the National Bureau of Economic

Research (NBER) is generally seen as the authority for dating US recessions. The NBER defines an

economic recession as: "a significant decline in [the] economic activity spread across the country, lasting

more than a few months, normally visible inrealGDP growth, real personal income, employment (non-

farm payrolls), industrial production, and wholesale-retail sales."[8] Almost universally, academics,

economists, policy makers, and businesses defer to the determination by the NBER for the precise dating

of a recession's onset and end.

Attributes

A recession has many attributes that can occur simultaneously and includes declines in coincident

measures of activity such as employment, investment, and corporate profits.

A severe (GDP down by 10%) or prolonged (three or four years) recession is referred to as an economic

depression, although some argue that their causes and cures can be different.[7] As an informal

shorthand, economists sometimes refer to different recession shapes, such asV-shaped,U-shaped,L-

shaped and W-shaped recessions.

In the US, V-shaped, or short-and-sharp contractions followed by rapid and sustained recovery, occurred

in 1954 and 1990-91; U-shaped (prolonged slump) in 1974-75, and W-shaped, or double-dip recessions

in 1949 and 1980-82. Japans 1993-94 recession was U-shaped and its 8-out-of-9 quarters of contraction
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in 1997-99 can be described as L-shaped. Korea, Hong Kong and South-east Asia experienced U-shaped

recessions in 1997-98, although Thailands eight consecutive quarters of decline should be termed L-

shaped.[9]

[edit]Predictors of a recession

Although there are no completely reliable predictors, the following are regarded to be possible predictors.

[10]

In the US a significant stock market drop has often preceded the beginning of a recession. However

about half of the declines of 10% or more since 1946 have notbeen followed by recessions.[11]In

about 50% of the cases a significant stock market decline came only after the recessions had already

begun.

Inverted yield curve,[12] the model developed by economist Jonathan H. Wright, uses yields on 10-

year and three-month Treasury securities as well as the Fed's overnight funds rate.[13] Another model

developed by Federal Reserve Bank of New York economists uses only the 10-year/three-month

spread. It is, however, not a definite indicator;[14] it is sometimes followed by a recession 6 to 18

months later[citation needed].

The three-month change in the unemployment rate and initial jobless claims.[15]

Index of Leading (Economic) Indicators (includes some of the above indicators).[16]

Lowering of Home Prices. Lowering of home prices or value, too much personal debts.

[edit]Government responses

Mostmainstream economists believe that recessions are caused by inadequate aggregate demand in the

economy, and favor the use of expansionary macroeconomic policy during recessions. Strategies favored

for moving an economy out of a recession vary depending on which economic school the policymakers

follow. Monetarists would favor the use of expansionarymonetary policy, while Keynesianeconomists

may advocate increased government spendingto spark economic growth.Supply-side economists may

suggest tax cuts to promote business capital investment.Laissez-faire minded economists may simply

recommend that the government not interfere with natural market forces.

Stock market and recessions

Some recessions have been anticipated by stock market declines. In Stocks for the Long Run, Siegel

mentions that since 1948, ten recessions were preceded by a stock market decline, by a lead time of 0 to

13 months (average 5.7 months), while ten stock market declines of greater than 10% in the DJIA were

not followed by a recession[17].
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The real-estatemarket also usually weakens before a recession.[18]Howeverreal-estate declines can last

much longer than recessions.[19]

Since the business cycle is very hard to predict, Siegel argues that it is not possible to take advantage of

economic cycles for timing investments. Even the National Bureau of Economic Research(NBER) takes

a few months to determine if a peak or trough has occurred in the US.[20]

During an economic decline, high yield stockssuch asfast moving consumer goods, pharmaceuticals,

and tobacco tend to hold up better[21]. However when the economy starts to recover and the bottom of the

market has passed (sometimes identified on charts as a MACD[22]), growth stocks tend to recover faster.

There is significant disagreement about how health care and utilities tend to recover[23]. Diversifying one's

portfolio into international stocks may provide some safety; however, economies that are closely

correlated with that of the U.S. may also be affected by a recession in the U.S..[24]

There is a view termed the halfway rule

[25]

according to which investors start discounting an economicrecovery about halfway through a recession. In the 16 U.S. recessions since 1919, the average length

has been 13 months, although the recent recessions have been shorter. Thus if the 2008 recession

followed the average, the downturn in the stock market would have bottomed around November 2008.

[edit]Recession and politics

Generally an administration gets credit or blame for the state of economy during its time.[26] This has

caused disagreements about when a recession actually started.[27]In an economic cycle, a downturn can

be considered a consequence of an expansion reaching an unsustainable state, and is corrected by a

brief decline. Thus it is not easy to isolate the causes of specific phases of the cycle.

The 1981 recession is thought to have been caused by the tight-money policy adopted by Paul Volcker,

chairman of the Federal Reserve Board, before Ronald Reagantook office. Reagan supported that policy.

EconomistWalter Heller, chairman of theCouncil of Economic Advisers in the 1960s, said that "I call it a

Reagan-Volcker-Carter recession.[28] The resulting taming of inflation did, however, set the stage for a

robust growth period during Reagan's administration.

It is generally assumed[weasel words] that government activity has some influence over the presence or degree

of a recession.[citation needed] Economists usually teach that to some degree recession is unavoidable, and its

causes are not well understood. Consequently, modern government administrations attempt to take

steps, also not agreed upon, to soften a recession. They are often unsuccessful, at least at preventing a

recession, and it is difficult to establish whether they actually made it less severe or longer lasting.[citation

needed]

[edit]History of recessions
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[edit]Global recessions

There is no commonly accepted definition of a global recession,IMF regards periods when global growth

is less than 3% to be global recessions.[29] The IMF estimates that global recessions seem to occur over a

cycle lasting between 8 and 10 years. During what the IMF terms the past three global recessions of the

last three decades, global per capita output growth was zero or negative.[30]

Economists at the International Monetary Fund(IMF) state that a global recession would take a slowdown

in global growth to three percent or less. By this measure, four periods since 1985 qualify: 19901993,

1998, 20012002 and 20082009.

[edit]United Kingdom recessions

Main article: List of recessions in the United Kingdom

[edit]United States recessions

Main article: List of recessions in the United States

According to economists, since 1854, the U.S. has encountered 32 cycles of expansions and

contractions, with an average of 17 months of contraction and 38 months of expansion.[8]However, since

1980 there have been only eight periods of negative economic growth over one fiscal quarter or more[31],

and four periods considered recessions:

July 1981-November 1982: 14 months

July 1990-March 1991: 8 months

March 2001-November 2001: 8 months

December 2007-current: current[32]

For the past three recessions, the NBER decision has approximately conformed with the definition

involving two consecutive quarters of decline. While the 2001 recession did not involve two consecutive

quarters of decline, it was preceded by two quarters of alternating decline and weak growth.[31]

[edit]Late 2000s recession

Further information: Late 2000s recession

Official economic data shows that a substantial number of nations are in recession as of early 2009. TheUS entered a recession at the end of 2007,[33]and 2008 saw many other nations follow suit.

[edit]United States

The United States housing market correction (a possible consequence ofUnited States housing bubble)

andsubprime mortgage crisishas significantly contributed to a recession.
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The 2008/2009 recession is seeing private consumption fall for the first time in nearly 20 years. This

indicates the depth and severity of the current recession. With consumer confidence so low, recovery will

take a long time. Consumers in the U.S. have been hard hit by the current recession, with the value

of their houses dropping and their pension savings decimated on the stock market. Not only have

consumers watched their wealth being eroded they are now fearing for their jobs as unemployment

rises. [34]

U.S. employers shed 63,000 jobs in February 2008[35], the most in five years. Former Federal

Reserve chairman Alan Greenspan said on April 6, 2008 that "There is more than a 50 percent chance

the United States could go into recession." [36]. On October 1, the Bureau of Economic Analysis reported

that an additional 156,000 jobs had been lost in September. On April 29, 2008, nine US states were

declared byMoody'sto be in a recession. In November 2008 Employers eliminated 533,000 jobs, the

largest single month loss in 34 years.[37]. For 2008, an estimated 2.6 million U.S. jobs were eliminated.[38]

The unemployment rate of US grew to 8.5 percent in March 2009, and there have been 5.1 million

job losses till March 2009 since the recession began in December 2007[2]. That is about five million

more people unemployed compared to just a year ago [3]. This has become largest annual jump in the

number of unemployed persons since the 1940s[4].

Although the US Economy grew in the first quarter by 1%,[39][40] by June 2008 some analysts stated that

due to a protracted credit crisis and "rampant inflation in commodities such as oil, food and steel", the

country was nonetheless in a recession.[41] The third quarter of 2008 brought on a GDP retraction of

0.5%[42]the biggest decline since 2001. The 6.4% decline in spending during Q3 on non-durable goods,

like clothing and food, was the largest since 1950.[43]

A Nov 17, 2008 report from the Federal Reserve Bank of Philadelphia based on the survey of 51

forecasters, suggested that the recession started in April 2008 and will last 14 months [44]They project real

GDP declining at an annual rate of 2.9% in the fourth quarter and 1.1% in the first quarter of 2009. These

forecasts represent significant downward revisions from the forecasts of three months ago.

A December 1, 2008, report from the National Bureau of Economic Research stated that the U.S. has

been in a recession since December 2007 (when economic activity peaked), based on a number of

measures including job losses, declines in personal income, and declines in real GDP.[45]By July of 2009

a growing number of economists believed that the recession may have ended.[46][47] The National

Bureau of Economic Research will not make this official determination for some time. In the 2001

recession, for example, the recession ended in November 2001, but it was not until July 2003 that

the NBER announced its official determination.[48]

Other countries
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stabilizing the economy because of a mechanism called the liquidity trap. However, historically not all

episodes of deflation correspond with periods of poor economic growth.[4]

Foreclosures Foreclosure is the legal and professional proceeding in which amortgagee, or otherlienholder, usually a lender, obtains a court ordered termination of a mortgagor'sequitable right

ofredemption. Usually a lender obtains asecurity interest from a borrower who mortgages or pledges an

asset like a house to secure the loan. If the borrowerdefaults and the lender tries torepossess the

property, courts of equity can grant the borrower the equitable right of redemption if the borrower repays

the debt. While this equitable right exists, the lender cannot be sure that it can successfully repossess the

property, thus the lender seeks to foreclose the equitable right of redemption. Other lien holders can also

foreclose the owner's right of redemption for other debts, such as for overdue taxes, unpaid contractors'

bills or overduehomeowners' association dues or assessments.

Unemployment

Beginning in the late2000s (December 2007 in the United States according to the National Bureau of

Economic Research)and with much greater intensity since September 2008the industrialized world

has been undergoing a recession, a pronounced deceleration of economic activity. This global

recession has been taking place in a economic environment characterized by various imbalances and

was sparked by the outbreak of thefinancial crisis of 20072009. Although the late-2000s recession has

at times been referred to as "the Great Recession," this same phrase has been used to refer to everyrecession of the several preceding decades.[2]

The financial crisis has been linked to reckless and unsustainable lending practices resulting from

the deregulation and securitizationof real estate mortgages in the United States.[3]The US mortgage-

backed securities, which had risks that were hard to assess, were marketed around the world. A more

broad based credit boom fed a global speculative bubble in real estate and equities, which served to

reinforce the risky lending practices.[4][5]The precarious financial situation was made more difficult by a

sharp increase in oil and food prices. The emergence ofSub-prime loanlosses in 2007 began the crisis

and exposed other risky loans and over-inflated asset prices. With loan losses mounting and the fall

ofLehman Brothers on September 15, 2008, a major panic broke out on the inter-bank loan market. As

share and housing prices declined many large and well establishedinvestment and commercialbanks in

the United States and Europesuffered huge losses and even faced bankruptcy, resulting in massive

public financial assistance.
http://en.wikipedia.org/wiki/Liquidity_traphttp://en.wikipedia.org/wiki/Foreclosurehttp://en.wikipedia.org/wiki/Lienholderhttp://en.wikipedia.org/wiki/Lienholderhttp://en.wikipedia.org/wiki/Court_orderhttp://en.wikipedia.org/wiki/Equity_(law)http://en.wikipedia.org/wiki/Equity_(law)http://en.wikipedia.org/wiki/Redemption_valuehttp://en.wikipedia.org/wiki/Redemption_valuehttp://en.wikipedia.org/wiki/Security_interesthttp://en.wikipedia.org/wiki/Security_interesthttp://en.wikipedia.org/wiki/Default_(finance)http://en.wikipedia.org/wiki/Repossessionhttp://en.wikipedia.org/wiki/Repossessionhttp://en.wikipedia.org/wiki/Courts_of_equityhttp://en.wikipedia.org/wiki/Homeowners'_associationhttp://en.wikipedia.org/wiki/Homeowners'_associationhttp://en.wikipedia.org/wiki/Unemploymenthttp://en.wikipedia.org/wiki/Unemploymenthttp://en.wikipedia.org/wiki/2000s_(decade)http://en.wikipedia.org/wiki/2000s_(decade)http://en.wikipedia.org/wiki/Recessionhttp://en.wikipedia.org/wiki/Global_recessionhttp://en.wikipedia.org/wiki/Global_recessionhttp://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932009http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932009http://en.wikipedia.org/wiki/Great_Recessionhttp://en.wikipedia.org/wiki/Deregulationhttp://en.wikipedia.org/wiki/Securitizationhttp://en.wikipedia.org/wiki/Securitizationhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Speculative_bubblehttp://en.wikipedia.org/wiki/Real_estate_bubblehttp://en.wikipedia.org/wiki/Oil_price_increases_since_2003http://en.wikipedia.org/wiki/2007%E2%80%932008_world_food_price_crisishttp://en.wikipedia.org/wiki/2007%E2%80%932008_world_food_price_crisishttp://en.wikipedia.org/wiki/Subprime_lendinghttp://en.wikipedia.org/wiki/Subprime_lendinghttp://en.wikipedia.org/wiki/Lehman_Brothershttp://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Liquidity_traphttp://en.wikipedia.org/wiki/Foreclosurehttp://en.wikipedia.org/wiki/Lienholderhttp://en.wikipedia.org/wiki/Lienholderhttp://en.wikipedia.org/wiki/Court_orderhttp://en.wikipedia.org/wiki/Equity_(law)http://en.wikipedia.org/wiki/Redemption_valuehttp://en.wikipedia.org/wiki/Security_interesthttp://en.wikipedia.org/wiki/Default_(finance)http://en.wikipedia.org/wiki/Repossessionhttp://en.wikipedia.org/wiki/Courts_of_equityhttp://en.wikipedia.org/wiki/Homeowners'_associationhttp://en.wikipedia.org/wiki/Unemploymenthttp://en.wikipedia.org/wiki/2000s_(decade)http://en.wikipedia.org/wiki/Recessionhttp://en.wikipedia.org/wiki/Global_recessionhttp://en.wikipedia.org/wiki/Global_recessionhttp://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932009http://en.wikipedia.org/wiki/Great_Recessionhttp://en.wikipedia.org/wiki/Deregulationhttp://en.wikipedia.org/wiki/Securitizationhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Speculative_bubblehttp://en.wikipedia.org/wiki/Real_estate_bubblehttp://en.wikipedia.org/wiki/Oil_price_increases_since_2003http://en.wikipedia.org/wiki/2007%E2%80%932008_world_food_price_crisishttp://en.wikipedia.org/wiki/Subprime_lendinghttp://en.wikipedia.org/wiki/Lehman_Brothershttp://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Europe


8/8

Aglobal recession has resulted in a sharp drop in international trade, rising unemployment and slumping

commodity prices. In December 2008, the National Bureau of Economic Research (NBER) declared that

the United States had been in recession since December 2007.[6]Several economists have predicted that

recovery may not appear until 2011 and that the recession will be the worst since the Great Depression of

the 1930s.[7][8] The conditions leading up to the crisis, characterised by an exorbitant rise in asset prices

and associated boom in economic demand, are considered a result of the extended period of easily

available credit,[9]inadequate regulation and oversight,[10]or increasing inequality.[11]

Fiscal andmonetary policieshave been significantly eased to stem the recession and financial risks.

While this has renewed interest in Keynesian economic ideas, the recent policy consensus is for the

stimulus to be withdrawn as soon as the economies recover to "chart a path to sustainable growth
http://en.wikipedia.org/wiki/Global_recessionhttp://en.wikipedia.org/wiki/Global_recessionhttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/Unemploymenthttp://en.wikipedia.org/wiki/National_Bureau_of_Economic_Researchhttp://en.wikipedia.org/wiki/Great_Depressionhttp://en.wikipedia.org/wiki/Fiscal_policyhttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/2008-2009_Keynesian_resurgencehttp://en.wikipedia.org/wiki/2008-2009_Keynesian_resurgencehttp://en.wikipedia.org/wiki/Global_recessionhttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/Unemploymenthttp://en.wikipedia.org/wiki/National_Bureau_of_Economic_Researchhttp://en.wikipedia.org/wiki/Great_Depressionhttp://en.wikipedia.org/wiki/Fiscal_policyhttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/2008-2009_Keynesian_resurgence

recession 2

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