Recession: Yes or no?
Economic growth slows to a crawl — Layoffs continue to mount
Housing market problems deepen — Consumers cut back spending
These types of headlines have triggered a lot of speculation over the past two months about whether the U.S. economy is headed toward, or already is in, a recession. People want to know how long this economic slowdown will last and how bad it will get. In this report, we will help you understand what a recession is, how we got where we are, and what indicators to watch.
The technical definition of a recession is a prolonged period of declining economic activity. But what does this really mean?
To help visualize a recession, think of the economy as a roller coaster. Most of the time, this ride is relatively boring; it’s either on a slow steady climb or is in a stretch of quick rises and drops. These "bunny hops" give us a mild sense of uncertainty.
But every so often, this coaster takes a real plunge, one that is steep and lasts a long time. During this period, job losses mount, factories get idled or shut down completely, and almost everyone’s money gets tight. It is this gut-wrenching period that constitutes a recession.
That hasn’t been determined yet, officially. By the technical definition provided by the National Board of Economic Research, the nonprofit research organization that officially declares a recession, we aren’t yet in one. In fact, this week the Commerce Department said the economy had a slight bit of growth in the last three months of 2007. But the economy definitely has slowed down. The question is, have we topped the hill? Is it time to start screaming?
Periods of economic slowdown can’t be prevented, but they can be influenced by outside forces http://savingpaydayloans.com. For example, the Federal Reserve lowered interest rates in the first half of the decade. With interest rates at historic lows, more people took out loans to buy cars and houses. This helped push the economic roller coaster back uphill.
Equally, the current economic downturn has been accentuated by the tightening of the credit market over the past seven months. This has caused the economic roller coaster to not only head downhill, but also has thrown it into a spiral.
That is hard to say. The length and depth of an economic slowdown can vary greatly. Since 1990, there have only been two recessions. The recession of 1990 was a real plunge, while the recession of 2001 was more shallow. Both lasted eight months. (Since the end of World War II, the longest an economic downturn has lasted is 16 months; the recessions of 1973 and 1981.) A year ago, most economists were predicting that the economy was headed for a slowdown or a bunny hop run. But now, more economists are predicting that we may be headed for a plunge.
The economic roller coaster is not a ride that you can get off. When the coaster starts to plunge, most of us have to just hold on, work hard, watch our spending and ride it out.
However, you can actually benefit from it. Economic uncertainty can lead to a drop in stock prices, providing you the chance to buy at a very good price. The trick is trying to buy toward the bottom of the fall and not in the middle. Also, real estate prices have been falling, so this may be a good moment for you to buy.
Filed under: finance by Fred