In economics, a recession is a business cycle contraction, a general slowdown in

economic activity over a period of time for more than two consecutive quarters.
[1][2] During recessions, many macroeconomic indicators vary in a similar way. P
roduction, as measured by Gross Domestic Product (GDP), employment, investment s
pending, capacity utilization, household incomes, business profits and inflation
all fall during recessions; while bankruptcies and the unemployment rate rise.
Recessions generally occur when there is a widespread drop in spending often fol
lowing an adverse supply shock or the bursting of an economic bubble. Government
s usually respond to recessions by adopting expansionary macroeconomic policies,
such as increasing money supply, increasing government spending and decreasing
taxation.
Definition
In a 1975 New York Times article, economic statistician Julius Shiskin suggested
several rules of thumb for defining a recession, one of which was "two down qua
rters of GDP".[3] In time, the other rules of thumb were forgotten,[4] and a rec
ession is now often defined simply as a period when GDP falls (negative real eco
nomic growth) for at least two quarters.[5][6] Some economists prefer a definiti
on 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 re
cessions. 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 real GDP growth, real personal income, employment (non-far
m payrolls), industrial production, and wholesale-retail sales."[8] Almost unive
rsally, academics, economists, policy makers, and businesses defer to the determ
ination by the NBER for the precise dating of a recession's onset and end.
[edit] Attributes This section requires expansion.
A recession has many attributes that can occur simultaneously and includes decli
nes in component measures of economic activity (GDP) such as consumption, invest
ment, government spending, and net export activity. These summary measures refle
ct underlying drivers such as employment levels and skills, household savings ra
tes, corporate investment decisions, interest rates, demographics, and governmen
t policies.
Economist Richard C. Koo wrote that under ideal conditions, a country's economy
should have the household sector as net savers and the corporate sector as net b
orrowers, with the government budget nearly balanced and net exports near zero.[
9] When these relationships become imbalanced, recession can develop within the
country or create pressure for recession in another country. Policy responses ar
e often designed to drive the economy back towards this ideal state of balance.
A severe (GDP down by 10%) or prolonged (three or four years) recession is refer
red to as an economic depression, although some argue that their causes and cure
s can be different.[7] As an informal shorthand, economists sometimes refer to d
ifferent recession shapes, such as V-shaped, U-shaped, L-shaped and W-shaped rec
essions
[edit] Type of recession or shapeMain article: Recession shapes
Recessions and subsequent growth periods may have distinctive shapes when graphe
d. In the US, V-shaped, or short-and-sharp contractions followed by rapid and su
stained 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-sh
aped recessions in 1997-98, although Thailand s eight consecutive quarters of decl
ine should be termed L-shaped.[10]
[edit] Psychological aspectsRecessions have psychological and confidence aspects
. For example, if the expectation develops that economic activity will slow, fir
ms may decide to reduce employment levels and save money rather than invest. Suc
h expectations can create a self-reinforcing downward cycle, bringing about or w
orsening a recession.[11] Consumer confidence is one measure used to evaluate ec
onomic sentiment.[12] The term "Animal Spirits" has been used to describe the ps
ychological factors underlying economic activity. Economist Robert J. Shiller wr
ote that the term "...refers also to the sense of trust we have in each other, o
ur sense of fairness in economic dealings, and our sense of the extent of corrup
tion and bad faith. When animal spirits are on ebb, consumers do not want to spe
nd and businesses do not want to make capital expenditures or hire people."[13]
[edit] Balance sheet recessionThe bursting of a real estate or financial asset p
rice bubble can cause a recession. For example, economist Richard Koo wrote that
Japan's "Great Recession" that began in 1990 was a "balance sheet recession." I
t was triggered by a collapse in land and stock prices, which caused Japanese fi
rms to become insolvent, meaning their assets were worth less than their liabili
ties. Despite zero interest rates and expansion of the money supply to encourage
borrowing, Japanese corporations in aggregate opted to pay down their debts fro
m their own business earnings rather than borrow to invest as firms typically do
. Corporate investment, a key demand component of GDP, fell enormously (22% of G
DP) between 1990 and its peak decline in 2003. Japanese firms overall became net
savers after 1998, as opposed to borrowers. Koo argues that it was massive fisc
al stimulus (borrowing and spending by the government) that offset this decline
and enabled Japan to maintain its level of GDP. In his view, this avoided a U.S.
type Great Depression, in which U.S. GDP fell by 46%. He argued that monetary p
olicy was ineffective because there was limited demand for funds while firms pai
d down their liabilities. In a balance sheet recession, GDP declines by the amou
nt of debt repayment and un-borrowed individual savings, leaving government stim
ulus spending as the primary remedy.[9][14]
[edit] Liquidity trapA liquidity trap situation can develop in which interest ra
tes reach near zero (ZIRP) yet do not effectively stimulate the economy. In theo
ry, near-zero interest rates should encourage firms and consumers to borrow and
spend. However, if too many individuals or corporations focus on saving or payin
g down debt rather than spending, lower interest rates have less effect on inves
tment and consumption behavior; the lower interest rates are like "pushing on a
string." Economist Paul Krugman described the U.S. 2009 recession and Japan's lo
st decade as liquidity traps. One remedy to a liquidity trap is expanding the mo
ney supply via quantitative easing or other techniques in which money is effecti
vely printed to purchase assets, thereby creating inflationary expectations that
cause savers to begin spending again. Government stimulus spending and mercanti
list policies to stimulate exports and reduce imports are other techniques to st
imulate demand.[15] He estimated in March 2010 that developed countries represen
ting 70% of the world's GDP were caught in a liquidity trap.[16]
[edit] PredictorsAlthough there are no completely reliable predictors, the follo
wing are regarded to be possible predictors.[17]
Inverted yield curve,[18] the model developed by economist Jonathan H. Wright, u
ses yields on 10-year and three-month Treasury securities as well as the Fed's o
vernight funds rate.[19] 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;[20]
The three-month change in the unemployment rate and initial jobless claims.[21]
Index of Leading (Economic) Indicators (includes some of the above indicators).[
22]
Lowering of asset prices, such as homes and financial assets, or high personal a
nd corporate debt levels.
[edit] Government responses This section requires expansion.
See also: Stabilization policy
Most mainstream economists believe that recessions are caused by inadequate aggr
egate demand in the economy, and favor the use of expansionary macroeconomic pol
icy during recessions. Strategies favored for moving an economy out of a recessi
on 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 investment. When in
terest rates reach the boundary of an interest rate of zero percent conventional
monetary policy can no longer be used and government must use other measures to
stimulate recovery. Keynesians argue that fiscal policy, tax cuts or increased
government spending, will work when monetary policy fails. Spending is more effe
ctive because of its larger multiplier but tax cuts take effect faster.
[edit] Stock market The examples and perspective in this article deal primarily
with the United States and do not represent a worldwide view of the subject. Ple
ase improve this article and discuss the issue on the talk page. (September 2008
)
Some recessions have been anticipated by stock market declines. In Stocks for th
e Long Run, Siegel mentions that since 1948, ten recessions were preceded by a s
tock market decline, by a lead time of 0 to 13 months (average 5.7 months), whil
e ten stock market declines of greater than 10% in the DJIA were not followed by
a recession.[23]
The real-estate market also usually weakens before a recession.[24] However real
-estate declines can last much longer than recessions.[25]
Since the business cycle is very hard to predict, Siegel argues that it is not p
ossible to take advantage of economic cycles for timing investments. Even the Na
tional Bureau of Economic Research (NBER) takes a few months to determine if a p
eak or trough has occurred in the US.[26]
During an economic decline, high yield stocks such as fast moving consumer goods
, pharmaceuticals, and tobacco tend to hold up better.[27] However when the econ
omy starts to recover and the bottom of the market has passed (sometimes identif
ied on charts as a MACD[28]), growth stocks tend to recover faster. There is sig
nificant disagreement about how health care and utilities tend to recover.[29] D
iversifying one's portfolio into international stocks may provide some safety; h
owever, economies that are closely correlated with that of the U.S. may also be
affected by a recession in the U.S.[30]
There is a view termed the halfway rule[31] according to which investors start d
iscounting 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 rec
ent recessions have been shorter. Thus if the 2008 recession followed the averag
e, the downturn in the stock market would have bottomed around November 2008. Th
e actual US stock market bottom of the 2008 recession was in March 2009.
[edit] PoliticsGenerally an administration gets credit or blame for the state of
economy during its time.[32] This has caused disagreements about when a recessi
on actually started.[33] In an economic cycle, a downturn can be considered a co
nsequence 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 adop
ted 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-Vo
lcker-Carter recession.[34] The resulting taming of inflation did, however, set
the stage for a robust growth period during Reagan's administration.
Economists usually teach that to some degree recession is unavoidable, and its c
auses are not well understood. Consequently, modern government administrations a
ttempt to take steps, also not agreed upon, to soften a recession.
[edit] Impacts[edit] UnemploymentThe full impact of a recession on employment ma
y not be felt for several quarters. Research in Britain shows that low-skilled,
low-educated workers and the young are most vulnerable to unemployment[35] in a
downturn. After recessions in Britain in the 1980s and 1990s, it took five years
for unemployment to fall back to its original levels.[36]
[edit] BusinessProductivity tends to fall in the early stages of a recession, th
en rises again as weaker firms close. The variation in profitability between fir
ms rises sharply. Recessions have also provided opportunities for anti-competiti
ve mergers, with a negative impact on the wider economy: the suspension of compe
tition policy in the United States in the 1930s may have extended the Great Depr
ession.[36]
[edit] Social effectsThe living standards of people dependent on wages and salar
ies are more affected by recessions than those who rely on fixed incomes or welf
are benefits. The loss of a job is known to have a negative impact on the stabil
ity of families, and individuals' health and well-being.[36]
[edit] History[edit] GlobalThere is no commonly accepted definition of a global
recession, although the IMF regards periods when global growth is less than 3% t
o be global recessions.[37] The IMF estimates that global recessions seem to occ
ur over a cycle lasting between 8 and 10 years.[citation needed] During what the
IMF terms the past three global recessions of the last three decades, global pe
r capita output growth was zero or negative.[38]
Economists at the International Monetary Fund (IMF) state that a global recessio
n would take a slowdown in global growth to three percent or less. By this measu
re, four periods since 1985 qualify: 1990 1993, 1998, 2001 2002 and 2008 2009.
[edit] United KingdomMain article: List of recessions in the United Kingdom
The most recent recession to affect the United kingdom was the Late-2000s recess
ion.
[edit] United StatesMain article: List of recessions in the United States
According to economists, since 1854, the U.S. has encountered 32 cycles of expan
sions and contractions, with an average of 17 months of contraction and 38 month
s of expansion.[8] However, since 1980 there have been only eight periods of neg
ative economic growth over one fiscal quarter or more,[39] and four periods cons
idered recessions:
July 1981-November 1982: 14 months
July 1990-March 1991: 8 months
March 2001-November 2001: 8 months
December 2007-June 2009: 18 months[40][41]
For the past three recessions, the NBER decision has approximately conformed wit
h the definition involving two consecutive quarters of decline. While the 2001 r
ecession did not involve two consecutive quarters of decline, it was preceded by
two quarters of alternating decline and weak growth.[39]
[edit] Late 2000sMain article: Late-2000s recession
Official economic data shows that a substantial number of nations are in recessi
on as of early 2009. The US entered a recession at the end of 2007,[42] and 2008
 saw many other nations follow suit. The US recession of 2007 ended in June, 200
9[43] as the nation entered the current economic recovery.
[edit] United StatesThe United States housing market correction (a possible cons
equence of United States housing bubble) and subprime mortgage crisis has signif
icantly 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 ho
uses 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. [44]
U.S. employers shed 63,000 jobs in February 2008,[45] the most in five years. Fo
rmer Federal Reserve chairman Alan Greenspan said on April 6, 2008 that "There i
s more than a 50 percent chance the United States could go into recession."[46]
On October 1, the Bureau of Economic Analysis reported that an additional 156,00
0 jobs had been lost in September. On April 29, 2008, nine US states were declar
ed by Moody's to be in a recession. In November 2008, employers eliminated 533,0
00 jobs, the largest single month loss in 34 years.[47] For 2008, an estimated 2
.6 million U.S. jobs were eliminated.[48]
The unemployment rate of US grew to 8.5 percent in March 2009, and there have be
en 5.1 million job losses till March 2009 since the recession began in December
2007.[49] That is about five million more people unemployed compared to just a y
ear ago.[50] This has become largest annual jump in the number of unemployed per
sons since the 1940s.[51]
Although the US Economy grew in the first quarter by 1%,[52][53] by June 2008 so
me 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 r
ecession.[54] The third quarter of 2008 brought on a GDP retraction of 0.5%[55]
the biggest decline since 2001. The 6.4% decline in spending during Q3 on non-du
rable goods, like clothing and food, was the largest since 1950.[56]
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 an
d will last 14 months.[57] 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 forecast
s represent significant downward revisions from the forecasts of three months ag
o.
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 activit
y peaked), based on a number of measures including job losses, declines in perso
nal income, and declines in real GDP.[58] By July 2009 a growing number of econo
mists believed that the recession may have ended.[59][60] The National Bureau of
Economic Research announced on September 20, 2010 that the 2008/2009 recession
ended in June 2009, making it the longest recession since World War II.[61]
[edit] Other countries This section does not cite any references or sources.
Please help improve this article by adding citations to reliable sources. Unsour
ced material may be challenged and removed. (February 2008)
A few other countries have seen the rate of growth of GDP decrease, generally at
tributed to reduced liquidity, sector price inflation in food and energy, and th
e U.S. slowdown. These include the United Kingdom, Ireland, Canada, Japan, China
, India, New Zealand and many countries within the EEA. In some, the recession h
as already been confirmed by experts, while others are still waiting for the fou
rth 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 out
break. Australia avoided a technical recession in 2009, and had positive growth
against the overall global economic downturn.