When do we have a recession

Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. The National Bureau of Economic Research NBER defines a recession as "a significant decline in activity spread across the economy, lasting more than a few months, visible in industrial production, employment, real income, and wholesale-retail trade.

A recession is also believed to be signaled when businesses cease to expand, the GDP diminishes for two consecutive quarters, and the unemployment rate rises. The nature and causes of recessions are simultaneously evident and uncertain.

Recessions are, in essence, a cluster of business failures being realized simultaneously. Firms are forced to reallocate resources, scale back production, limit losses, and, usually, lay off employees.

Those are the clear and visible causes of recessions. There are several different ways to explain what causes a general cluster of business failures, why they are suddenly realized simultaneously, and how they can be avoided. Economists disagree about the answers to these questions, and several different theories have been offered. The standard macroeconomic definition of a recession is two consecutive quarters of negative GDP growth.

When this occurs, private businesses often scale back production and tries to limit exposure to systematic risk. Measurable levels of spending and investment are likely to drop, and a natural downward pressure on prices may occur as aggregate demand slumps. GDP declines, and unemployment rates rise because companies lay off workers to reduce costs. At the microeconomic level, firms experience declining margins during a recession. When revenue, whether from sales or investment, declines, firms look to cut their least-efficient activities.

For example, a firm might stop producing low-margin products or reduce employee compensation. It might also renegotiate with creditors to obtain temporary interest relief. Unfortunately, declining margins may force businesses to fire less productive employees.

A range of financial, psychological, and real economic factors are at play in any given recession. The significant economic theories of recession focus on financial, psychological, and fundamental economic factors that can lead to the cascade of business failures that constitute a recession. Some theories look at long-term economic trends that lay the groundwork for a recession in the years leading up to it. Some look only at the immediately visible factors that appear at the onset of a recession.

Many or all of these various factors may be at play in any given recession. Financial factors can contribute to an economy's fall into a recession during the — U. The overextension of credit and debt on risky loans and marginal borrowers can lead to an enormous build-up of risk in the financial sector. The expansion of the supply of money and credit in the economy by the Federal Reserve and the banking sector can drive this process to extremes, stimulating risky asset price bubbles.

Artificially suppressed interest rates during the boom times leading up to a recession can distort the structure of relationships among businesses and consumers.

It happens by making business projects, investments, and consumption decisions that are interest rate-sensitive, such as the decision to buy a bigger house or launch a risky long-term business expansion, appear to be much more appealing than they ought to be. The failure of these decisions when rates rise to reflect reality constitutes a major component of the rash of business failures that make up a recession.

Psychological factors are frequently cited by economists for their contribution to recessions also. The excessive exuberance of investors during the boom years brings the economy to its peak. The first two quarters of saw GDP falling sharply, making it the worst recession on record, and the first in the UK since It usually means there are more jobs, and companies are more profitable and can pay employees and shareholders more.

A growing economy also gives the government more money in taxes. So it can cut taxes, or spend more on benefits, public services and government workers' wages. When the economy shrinks, all these things go into reverse. The third quarter of saw the UK economy growing again, meaning that technically the recession was over. July to September saw the fastest three-month growth on record - But what the figures capture is an economy shutting down and reopening again.

Shops and restaurants closed in the spring during the nationwide shutdown, and reopened in the summer. People started going out, taking holidays and getting back to some of their normal lives. They spent more money, bringing the amount of economic activity closer to where it was last year. However there is still a big gap between how the economy was doing last year, and where it stands today.

Though the recession is over, the economy is 9. That reflects the fact that hundreds of thousands of people have lost their jobs, and millions are still on furlough, with the government paying most of their wages. Many businesses still have far less trade than before the pandemic.

It takes a while for statisticians to calculate the size of the economy, so their figures always describe the recent past, not what's happening today. The latest figures run to the end of September, before wide-ranging new lockdowns were introduced around the UK.

However, the recovery's pace was already slowing down in September. When figures for the October to December quarter are published, they may well show GDP falling again as England's nationwide lockdown and measures in other nations hit the economy. If the following quarter also sees a fall, then that would be a second recession, or what is sometimes called a "double-dip" recession, where two recessions happen close together.

However, Bank of England forecasts expect to see growth next year. And if an effective vaccine becomes widely available, that would strongly boost the recovery.

The UK has been doing worse than other major worldwide economies. The Great Depression , which lasted about 10 years from to , was precipitated by the stock market crash in September Yet it wasn't until the s that the banks collapsed.

This time, the U. That raises the question of how easy it will be to get the economy fully going again, Stiglitz says. The Great Recession was an economic slowdown that began in finance and trickled down to the rest of the economy, Stiglitz says. But now, everyone is affected. It's hitting everywhere all at once, from travel to food service to health care. That makes it difficult for the government to boost economic activity and end the recession.

Typically, when the private sector is not fully functioning, the public sector steps in to help, Rouse says. That public sector role is usually taken on by federal and state governments, particularly during economic downturns. During the Great Depression, for example, President Franklin Delano Roosevelt's administration created the Works Progress Administration , which put over 8 million Americans to work on public projects.

This chart shows the employment gains and losses across different U. The differences between this coronavirus-spurred economic recession and previous downturns make it difficult to determine the outcome. Many economists believe the U. An April Reuters poll found nearly half of 45 economists surveyed believed the U.