{{otheruses4|a general slowdown in economic activity}}

In economics, a '''recession''' is a general slowdown in economic activity over a long period of time, or a [[business cycle]] contraction.<ref>{{cite web |url= http://www.merriam-webster.com/dictionary/recession|title=Recession |accessdate=19 November 2008 |publisher= Merriam-Webster Online Dictionary}}</ref><ref>{{cite web |url= http://encarta.msn.com/encnet/features/dictionary/DictionaryResults.aspx?refid=1861699686|title= Recession definition|accessdate=19 November 2008 |work= Encarta World English Dictionary [North American Edition]|publisher= Microsoft Corporation|year= 2007}}</ref> During recessions, many [[macroeconomics|macroeconomic]] indicators vary in a similar way. Production as measured by [[Gross Domestic Product]] (GDP), employment, investment spending, [[capacity utilization]], household incomes, business profits and [[inflation]] all fall during recessions; [[bankruptcy|bankruptcies]] and the [[unemployment rate]] rises.

Governments usually respond to recessions by adopting expansionary [[macroeconomic policies]], such as [[monetary policy|increasing money supply]], [[fiscal policy|increasing government spending and decreasing taxation]].

== Identifying ==

{{Economics sidebar}}

In a 1975 New York Times article, economic statistician Julius Shiskin suggested several rules of thumb for identifying a recession, one of which was "two down quarters of GDP".<ref>{{citation|title = The Changing Business Cycle|newspaper = [[New York Times]]|page = 222|date = 1974-12-01|first = Julius|last = Shiskin}}</ref> In time, the other rules of thumb were forgotten,<ref>{{Cite news | url = http://money.cnn.com/2008/05/05/news/economy/recession/index.htm|title = The risk of redefining recession|first1 = Lakshman|last1 = Achuthan|first2 = Anirvan|last2 = Banerji|publisher = [[CNN]]|date = 2008-05-07}}</ref> and a recession is now often defined simply as a period when GDP falls (negative real economic growth) for at least two [[Calendar_year#Quarters|quarters]].<ref>{{cite web |url=http://www.bloomberg.com/invest//glossary/bfglosr.htm |title= Financial Check Glossary|accessdate=19 November 2008 |publisher= Bloomberg.com|year= 2000}}</ref><ref>{{cite web |url= http://www.businessdictionary.com/definition/recession.html|title= Recession definition|accessdate=19 November 2008 |publisher= BusinessDictionary.com|date= 2007–2008}}</ref> Some economists prefer a definition of a 1.5% rise in unemployment within 12 months.<ref name="Eslake"/>

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 in [[GDP deflator|real]] [[GDP]] growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales."<ref name="nber.org"> {{cite web |url= http://www.nber.org/cycles.html|title= Business Cycle Expansions and Contractions|accessdate=19 November 2008 |publisher= National Bureau of Economic Research}}</ref> 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==

{{Expand|date=March 2009}}

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 [[Depression (economics)|economic depression]], although some argue that their causes and cures can be different.<ref name="Eslake">http://clubtroppo.com.au/2008/11/23/what-is-the-difference-between-a-recession-and-a-depression/ "What is the difference between a recession and a depression?" Saul Eslake Nov 2008</ref> As an informal shorthand, economists sometimes refer to different [[recession shapes]], such as [[V-shaped recession|V-shaped]], [[U-shaped recession|U-shaped]], [[L-shaped recession|L-shaped]] and [[W-shaped recession|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. Japan’s 1993-94 recession was U-shaped and its 8-out-of-9 quarters of contraction in 1997-99 can be described as L-shaped. Korea, Hong Kong and South-east Asia experienced U-shaped recessions in 1997-98, although Thailand’s eight consecutive quarters of decline should be termed L-shaped.<ref>http://www.adb.org/Documents/Books/Key_Indicators/2001/default.asp</ref>

== Predictors of a recession ==

Although there are no completely reliable predictors, the following are regarded to be possible predictors.<ref>{{cite web |url=http://www.mitpressjournals.org/doi/pdfplus/10.1162/003465398557320?cookieSet=1 |title=Predicting U.S. Recessions: Financial Variables as Leading Indicators |author=A Estrella, FS Mishkin |publishdate=1995 |publisher=MIT Press}}

</ref>

* 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 ''not'' been followed by recessions.<ref>Jeremy Siegel, [[Stocks for the Long Run]]</ref> In about 50% of the cases a significant stock market decline came only after the recessions had already begun.

* [[Yield curve#Inverted yield curve|Inverted yield curve]],<ref>[http://online.wsj.com/article/SB116821099838669658.html?mod=mostpop Grading Bonds on Inverted Curve] By Michael Hudson</ref> 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.<ref>Wright, Jonathan H., [http://ssrn.com/abstract=899538 The Yield Curve and Predicting Recessions] (March 2006). FEDs Working Paper No. 2006-7.</ref> 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;<ref>[http://www.ny.frb.org/research/epr/forthcoming/0801rose.html Signal or Noise? Implications of the Term Premium for Recession Forecasting]</ref> it is sometimes followed by a recession 6 to 18 months later{{Fact|date=January 2009}}.

* The three-month change in the unemployment rate and initial jobless claims.<ref>[http://blogs.wsj.com/economics/2008/01/28/labor-model-predicts-lower-recession-odds/ Labor Model Predicts Lower Recession Odds]</ref>

* [[Index of Leading Indicators|Index of Leading (Economic) Indicators]] (includes some of the above indicators).<ref>[http://seekingalpha.com/article/60871-leading-economic-indicators-suggest-u-s-in-recession Leading Economic Indicators Suggest U.S. In Recession] January 21, 2008</ref>

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

== Government responses ==

{{Expand|section|date=March 2009}}

{{See also|Stabilization policy}}

Most [[mainstream economics|mainstream 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 expansionary [[monetary policy]], while [[Keynesian]] economists may advocate increased [[government spending]] to spark economic growth. [[Supply-side]] economists may suggest tax cuts to promote business [[capital (economics)|capital]] investment. [[Laissez-faire#Economic and political theory|Laissez-faire]] minded economists may simply recommend that the government not interfere with natural market forces.

==Stock market and recessions==

{{globalize/USA|date=September 2008}}

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<ref>Siegel, Jeremy J. (2002). Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies, 3rd, New York: McGraw-Hill, 388. ISBN 9780071370486</ref>.

The [[real-estate]] market also usually weakens before a recession.<ref>{{cite web|url=http://lvrg.org.au/blog/2009/06/from-subprime-to-terrigenous-recession.html|title=From the subprime to the terrigenous: Recession begins at home|publisher=Land Values Research Group|date=June&nbsp;2, 2009|quote=A downturn in the property market, especially in turnover (sales) of properties, is a ''leading'' indicator of recession, with a lead time of up to 9 quarters...}}</ref> However [[real-estate]] declines can last much longer than recessions.<ref>{{cite web|author=Robert J. Shiller|url=http://www.nytimes.com/2009/06/07/business/economy/07view.html|title=Why Home Prices May Keep Falling|publisher=''New York Times'', June&nbsp;6, 2009}}</ref>

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.<ref>[http://www.washingtonpost.com/wp-dyn/content/article/2007/12/10/AR2007121001589.html Recession Predictions and Investment Decisions] by Allan Sloan, December 11, 2007</ref>

During an economic decline, [[high yield stocks]] such as [[fast moving consumer goods]], pharmaceuticals, and tobacco tend to hold up better<ref>[http://money.cnn.com/2008/02/05/news/economy/recession_invest.fortune/index.htm?postversion=2008020603 Recession? Where to put your money now.] Shawn Tully, February 6 2008</ref>. However when the economy starts to recover and the bottom of the market has passed (sometimes identified on charts as a [[MACD]] <ref>[http://moneycentral.msn.com/investor/charts/chartdl.aspx?PT=7&compsyms=xlu%2Cge&CB=1&D4=1&DD=1&D5=0&DCS=2&MA0=0&MA1=0&CP=1&C5=3&C5D=1&C6=2001&C7=11&C7D=30&C8=2001&C9=-1&CF=2&D7=&D6=&showchartbt=Redraw+chart&symbol=%24COMPX&nocookie=1&SZ=0 crossover]</ref>), [[growth stock]]s tend to recover faster. There is significant disagreement about how health care and utilities tend to recover<ref>[http://www.forbes.com/2008/01/28/ibm-hpq-recession-pf-ii_jl_0128money_inl.html Rethinking Recession-Proof Stocks]

Joshua Lipton 01.28.08</ref>. 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..<ref>[http://seekingalpha.com/article/60656-recession-stock-picks-from-morgan-stanley-s-douglas-cohen Recession Stock Picks]Douglas Cohen, January 18, 2008</ref>

There is a view termed the ''halfway rule'' <ref>http://online.wsj.com/article/SB122635740974515379.html NOVEMBER 11, 2008 Recession Puts Halfway Rule to the Test, By DAVID GAFFEN</ref> according to which investors start discounting an economic recovery 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.

==Recession and politics==

Generally an administration gets credit or blame for the state of economy during its time.<ref>[http://news.bbc.co.uk/1/hi/business/7215351.stm Economy puts Republicans at risk] 29 January 2008</ref> This has caused disagreements about when a recession actually started.<ref>[http://budget.senate.gov/democratic/press/2003/fs_bushrecession073103.pdf The Bush Recession] Prepared by: Democrat staff, Senate Budget Committee,July 31, 2003</ref>

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 Reagan]] took office. Reagan supported that policy. Economist [[Walter Heller]], chairman of the [[Council of Economic Advisers]] in the 1960s, said that "I call it a Reagan-Volcker-Carter recession.<ref>[http://www.time.com/time/magazine/article/0,9171,922689-2,00.html Ready for a Real Downer] Monday, Nov. 23, 1981 By GEORGE J. CHURCH</ref> The resulting taming of inflation did, however, set the stage for a robust growth period during Reagan's administration.

It is generally assumed {{Weasel-inline|date=June 2009}} that government activity has some influence over the presence or degree of a recession. {{Fact|date=June 2009}} 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.{{Fact|date=September 2008}}

==History of recessions==

===Global recessions===

<!-- to become "Global recession" after administrator page move -->

There is no commonly accepted definition of a [[global recession]], [[IMF]] regards periods when global growth is less than 3% to be global recessions.<ref>[http://www.imf.org/external/np/vc/2002/040502.htm The Recession that Almost Was.] Kenneth Rogoff, International Monetary Fund, Financial Times, April 5, 2002</ref> 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.<ref>[http://www.bloomberg.com/apps/news?pid=20601087&sid=arlKrFbn3pfY&refer=home Global Recession Risk Grows as U.S. `Damage' Spreads] </ref>

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: 1990–1993, 1998, 2001–2002 and 2008–2009.

===United Kingdom recessions===

{{main|List of recessions in the United Kingdom}}

===United States recessions===

{{main|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.<ref name="nber.org" /> However, since 1980 there have been only eight periods of negative economic growth over one fiscal quarter or more<ref name="autogenerated1">http://www.bea.gov/national/xls/gdpchg.xls</ref>, and four periods considered recessions:

* [[Early 1980s recession|July 1981-November 1982]]: 14 months

* [[Early 1990s recession|July 1990-March 1991]]: 8 months

* [[Early 2000s recession#United_States|March 2001-November 2001]]: 8 months

* [[Late-2000s recession|December 2007-current]]: current<ref>[http://money.cnn.com/2008/12/01/news/economy/recession/index.htm?postversion=2008120112 It's official: Recession since Dec. '07]</ref>

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.<ref name="autogenerated1" />

==Late 2000s recession==

{{further|[[Late 2000s recession]]}}

Official economic data shows that a substantial number of nations are in recession as of early 2009. The US entered a recession at the end of 2007,<ref name="nber">{{cite web|url=http://www.nber.org/cycles/dec2008.pdf|title=Determination of the December 2007 Peak in Economic Activity.|date=2008-12-11|publisher=NBER Business Cycle Dating Committee|accessdate=2009-04-26}}</ref> and 2008 saw many other nations follow suit.

=== United States ===

The [[United States housing market correction]] (a possible consequence of [[United States housing bubble]]) and [[subprime mortgage crisis]] has significantly contributed to a recession.

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.

<ref>[http://www.ibisworld.com/recession2009/ Economic Crisis: When will it End? IBISWorld Recession Briefing "] Dr. Richard J. Buczynski and Michael Bright, IBISWorld, January 2009''</ref>

U.S. employers shed 63,000 jobs in February 2008<ref>[http://www.wealthalchemist.com/Blog/2009/01/job-loss-prediction-2009-2010/]Job Loss Predictions</ref>, 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." <ref>[http://business.timesonline.co.uk/tol/business/columnists/article3694545.ece?openComment=true Recession unlikely if US economy gets through next two crucial months]</ref>. 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 by [[Moody's]] to be in a recession. In November 2008 Employers eliminated 533,000 jobs, the largest single month loss in 34 years.<ref>http://www.nytimes.com/2008/12/06/business/economy/06jobs.html</ref>. For 2008, an estimated 2.6 million U.S. jobs were eliminated.<ref>http://www.statesmanjournal.com/article/20090110/NEWS/901100332</ref>

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[http://www.wealthalchemist.com/Blog/2009/04/reality-check-job-loss-2009-control/]. That is about five million more people unemployed compared to just a year ago [http://www.bls.gov/news.release/empsit.nr0.htm]. This has become largest annual jump in the number of unemployed persons since the 1940’s [http://money.cnn.com/2009/01/09/news/economy/jobs_december/index.htm].

Although the US Economy grew in the first quarter by 1%, <ref>[http://www.clevelandfed.org/research//trends/2008/0608/01ecoact.cfm Real GDP First-Quarter 2008 Preliminary Estimate :: Brent Meyer :: Economic Trends :: 06.03.08 :: Federal Reserve Bank of Cleveland<!-- Bot generated title -->]</ref><ref>[http://biz.yahoo.com/ap/080626/economy.html?.v=14 Fragile economy improves but not out of woods yet: Financial News - Yahoo! Finance<!-- Bot generated title -->]</ref> 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.<ref>[http://www.newsweek.com/id/140553 Why it's worse than you think], 16 June 2008, Newsweek.</ref> The third quarter of 2008 brought on a GDP retraction of 0.5%<ref>[http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm GROSS DOMESTIC PRODUCT: THIRD QUARTER 2008]</ref> 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.<ref>[http://www.bloomberg.com/apps/news?pid=20601087&sid=aB3KBZXgh.Rk&refer=home U.S. Economy Contracts Most Since the 2001 Recession]</ref>

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 <ref>http://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-professional-forecasters/2008/survq408.cfm?loc=interstitialskip Fourth Quarter 2008 Survey of Professional Forecasters Release Date: November 17, 2008</ref> 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.<ref>http://www.usatoday.com/money/economy/2008-12-01-recession-nber-statement_N.htm Text of the NBER's statement on the recession</ref> By July of 2009 a growing number of economists believed that the recession may have ended.<ref>Daniel Gross, [http://www.newsweek.com/id/206631?from=rss The Recession Is... Over?], ''[[Newsweek]]'', July 14, 2009.</ref> <ref>V.I. Keilis-Borok et al., [http://www.jprr.org/index.php/jprr/article/view/106 Pattern of Macroeconomic Indicators Preceding the End of an American Economic Recession.] Journal of Pattern Recognition Research, JPRR Vol.3 (1) 2008.</ref> 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.<ref>[http://www.nber.org/cycles/july2003.html 2003 Business Cycle Dating Committee, July 2003], National Bureau of Economic Research</ref>

=== Other countries ===

{{Unreferenced section|date=February 2008}}

A few other countries have seen the rate of growth of GDP decrease, generally attributed to reduced liquidity, sector price inflation in food and energy, and the U.S. slowdown. These include the [[United Kingdom]], [[Republic of Ireland|Ireland]], [[Canada]], [[Japan]], [[People's Republic of China|China]], [[India]], [[New Zealand]] and many countries within the [[European Economic Area|EEA]]. In some, the recession has already been confirmed by experts, while others are still waiting for the fourth quarter GDP growth data to show two consecutive quarters of negative growth. India along with China is experiencing an economic slowdown but not a recession. Also Africa and South Africa are experiencing economic slowdown and global outbreak.

Australia avoided a technical recession in 2009, and had positive growth against the overall global economic downturn.

==See also==

*[[Depression (economics)|Economic depression]]

*[[Economic stagnation]]

*[[Great Depression]] - August 1929 to September 1939: longest (and deepest) recession of the 20th century

*[[List of recessions in the United States]] - A list of important recessions in the United States

*[[Late 2000s recession]]

*[[Stagflation]]

===Causes of recessions===

*[[Crisis theory]]

*[[Tendency of the rate of profit to fall]]

*[[Currency crisis]]

*[[Energy crisis]]

*[[War]]

*[[Underconsumption]]

*[[Overproduction]]

*[[Financial crisis]]

===Effects of recessions===

*[[Bankrupt]]cies

*[[Credit crunch]]es

*[[Deflation]] (or [[disinflation]])

*[[Foreclosure]]s

*[[Unemployment]]

==References==

{{reflist|2}}

==External links==

*[http://www.nber.org/cycles.html Business Cycle Expansions and Contractions] The National Bureau Of Economic Research

*[http://www.aier.org/research/ Independent Analysis of Business Cycle Conditions] - American Institute for Economic Research (AIER)

[[Category:Recessions]]

[[Category:Macroeconomics]]

[[Category:Market trends]]

[[Category:Business cycle]]

[[Category:Economic problems]]

[[Category:Terms and concepts of the 2000s United States housing bubble]]

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