Analysis: What a recession actually is and when to worry 2022-04-27 17:02:46


The word “stagnation” is generic Back to Regression in the business cycle, it has an ugly ring to it. Clearly, a declining economy is painful for many people to live in, even if it is a normal part of the business cycle.

But while you’ll likely see the term “stagnation” coming up a lot in the coming weeks and months, the exact definition isn’t that simple. It is technically possible that despite extremely low unemployment rates and other strong economic indicators, the US is in a recession right now and no one is realizing it yet.

It’s hard to predict if and when a recession will happen — even if storm clouds always seem so obvious in hindsight.

What could be causing the recession now?

inflation, or Costs are rising, at their highest level in 40 years, affecting what people can buy.

What is likely to cause a recession is the Federal Reserve’s plan to fight inflation by raising interest rates.

Federal Reserve Chairman Jerome Powell has argued that with targeted interest rate increases, policy makers can make a “soft landing” – controlling inflation without causing a recession.

If there is a recession, who is to blame?

If there is a recession, some people will blame The Federal Reserve for not acting sooner to control it.

You can legitimately blame the pandemic on intertwined supply chains, and Russia’s war on Ukraine for its impact on energy and food costs.

The only person who will receive much of the blame – right or not – is President Joe Biden, who will have to defend the faltering economy under his watch.

What exactly is stagnation?

The acronym has taught me that a recession is just a period characterized by two consecutive quarters of negative GDP growth. This turned out to be overly simple and not entirely accurate.

By this definition, the Covid-19 pandemic, which transformed the global economy and paused everyone’s life in early 2020, hardly caused a recession.

It turns out that two consecutive quarters of lower GDP is just one indicator pointed out by Julius Cheskin, who was the head of the Bureau of Labor Statistics in the 1970s and tried to figure out how to define a recession as it happens. As noted in the New York Times in 1974He noted these factors:
  • Period: Is non-agricultural Employment decline for at least nine months?
  • Depth: Is the gross national product By at least 1.5% at least two quarters? And is there a rise in the unemployment rate of more than 2 points and to a level above 6%?
  • Definition of: Is most of the economy – more than 75% of all industries – feeling bad about hiring for six months or more?

Who officially decides if there is a recession?

There will be a lot of people talking about a recession if the US economy turns around.

But Undisputed Governance is a private non-profit organization founded in 1920 by industrialists – the National Bureau of Economic Research – which has a committee of Eminent Economists.

They meet regularly to look at a range of economic data and decide whether The current business cycle has either reached an economic peak (high point) or trough (low point). Slacks are the periods between peaks and troughs.

When will they decide if there is a recession?

Although it is an accurate and good academic measure, the National Bureau of Economic Research is not looking ahead. The Committee does not predict a recession. It just sets them apart.

For example, the office did officially announced who – which The recession caused by the Covid-19 pandemic started in February 2020 Until June 2020, two months after it technically ended.

What exactly do they look at to decide if there is a recession?

NBER doesn’t say exactly. Who is this His website:

There is no fixed rule about which measures contribute information to the process or how to weight it in our decisions.

The organization monitors a batch of federal economic data — the same employment surveys and consumer spending reports everyone sees — and its general definition of a recession is:

A significant drop in economic activity is spread throughout the economy and lasts more than a few months. The Committee is of the view that while each of the three criteria—depth, prevalence, and duration—must be satisfied more or less individually, the extreme conditions disclosed by one criterion may partially compensate for weaker indicators than the other.

How long do recessions usually last?

Recession periods are usually shorter than periods of expansion. There was more than 10 consecutive years of growth before the Covid-19 pandemic.

There were six years of growth before the Great Recession of 2007. The Great Recession lasted 18 months, According to NBER.
The average expansion between World War II and the Covid-19 pandemic lasted about 65 months, and average The recessions lasted about 11 months, According to the Congressional Research Service.

Meanwhile, the Great Depression began with a 43-month recession from August 1929 to March 1933.

What is the worst case scenario now?

Former Treasury Secretary Larry Summers, who accurately predicted rising inflation when the Fed was skeptical, now says “stagflation” is a real possibility.

What is it Inflation accompanied by economic stagnation? Imagine rising prices as a result of inflation accompanied by a stagnant economy. The worst of both worlds.
“The current trajectory of Fed policy is likely to lead to stagflation, with unemployment and inflation averaging more than 5 percent over the next few years — and eventually to a major recession,” Summers said. Books in the Washington Post in March.