Understand Recession in Simple Language
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You will see and hear the phrase recession a lot from the newspaper or other broadcasting media in America. This is because there are a few economists predicted or even claimed that America is already in recession. This has been a hotly debated issue among the economists for months.
Recession is a word that makes a lot of people worry, isn’t it? However, no one can really say that America is in recession, so are we. In fact, we should not care about how others have said about it. We should learn how we can “see” it through our own eye and analysis. Then we should learn how to survive financially in the recession period. Recession-proof on our personal finance is the most important job that we must do right now, no matter recession happens or not. But before we do so, we must understand some basic about recession.
What is Recession?
Recession is a period when nation’s economy is slowing down. Conventionally, we only can declare we are in recession if the slowdown has continued up to 6 months. It is just a normal business cycle and natural phenomena in economy. Every thing that hits the highest point must go down before it can hit the new level. If you read the stock market chart, you will understand this theory very well.
The Recession Indicators
Generally, economists will use Gross Domestic Product (GDP) to test the economic health of a country. Basically it is a national spending report and it is also an important recession indicator.
We are in recession if 2 or more consecutive quarters of low GDP index. There are 4 quarters of GDP index in 1 year and each quarter is equal to 3 months. So if you want to know whether we are in recession right now, you can keep track the GDP index which is released every 3 months.
There are a few phenomena happen on the market during the recession, such as:
- People Buying less
- Decrease in factory production
- Decrease in Personal Income
- Growing of unemployment rate
- An unhealthy stock market
Because of this, we can actually predict the recession trend by looking at the market phenomena. Therefore there are a few more economic indicators can help us to predict the recession trend:
- Consumer Confidence Index – showing us the financial health, spending power and the confidence level of the average consumer.
- Industrial Production – showing us the production rate of the factories.
- Total Personal Income – showing us the rate of personal income of the nation.
- The unemployment rate – let us to see the unemployment rate
- Stock Market Indices – let us to understand the overall stock market trends.
Don’t worry if you are not familiar with all the economy indicators. In fact, you can actually feel the trend on your own without reading those indicators’ reports. All you have to feel is the consumer confidence on spending.
Every day, you meet and deal with a lot of people with different background through you jobs or businesses. From there, actually you can feel the consumer spending confidence. If people are worried and stop spending money, then the business of the retailers will drop. Then the production of factories will drop and the unemployment rate will increase. Since the business is not really good, the stock market will collapse and the recession trend will happen. All of this is the economic chain effect.
Conclusion
Recession is generally caused by three factors: Fear, Uncertainty and Doubt. Economy will be good if people put money into the market such as investing or buying this etc. If something happen on the market, like housing crisis, that make people feeling fear, uncertainty and doubt, people will stop spending their money and attempt to hold their money. Then the economic chain effect will happen and make the world go into recession.
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