Ramsey County

Making $ense of Dollars and Cents

February 18, 2008

Can You Recognize a Recession?

          According to economists, since 1854 the U.S. has encountered 32 cycles of expansions in business growth followed by a contraction of business or a recession   In recent years, these cycles have been shorter and much less common.  Since 1980, economists have identified four recessions: Jan-July 1980, July 1981-Nov 1982, July 1990-March 1991 and March 2001-Nov 2001.  A current top news story is if we are in the midst of another recession. 

          There are no totally accurate and reliable characteristics of a recession but happenings that are regarded as predictors.include a drop in the stock market.  In his book, “Stocks for the Long Run”, economist Jeremy J. Siegel mentions that since 1948, ten recessions were preceded by a stock market decline. Siegel also notes that ten stock market declines of greater than 10% were not followed by a recession.

          The official definition of recession is when GDP (gross domestic product) growth is negative for consecutive two quarters or more. However, you can feel like you are in a recession before it has officially started because a recession is usually preceded by several quarters of slowing, but still positive growth. It feels like a recession when GDP growth slows, businesses stop expanding, employment falls, unemployment rises, and housing prices decline.                 

          Another features of recessions is that one segment of the economy may experience a severe downward trend while other segments are still doing fine. The current example of one segment having difficulties is the real estate market. Another well-known example of one economic segment experiencing a recession is the dot.com bust of the late 1990’s and early 2000. In the 1990s, the telecom industry had made huge amounts of money and began to overreach its expectations in terms of estimating future demand. Suddenly, the previously hoped for demand was much lower than expected which leading to mass layoffs, decrease in production, and thus decrease in spending.  The dot.com recession eventually spread to other segments of the economy.

          The terms recession and depression are often confused.  A severe or long recession is referred to as an economic depression.  A recession tends to resolve more quickly. Another economist once distinguished a depression from a recession this way: "a recession is when your neighbor loses his job; a depression is when you lose your job."

          Strategies for moving an economy out of a recession vary depending on which economic philosophy the policymakers follow. While some economists may advocate deficit spending by the government to spark economic growth, other supply-side economists may suggest tax cuts to promote business capital investment, while even others such as laissez-faire economists may simply recommend the government remain "hands off" and not interfere with the natural market forces of the economy whatsoever.

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524 4th Ave NE #5, 2nd Floor Ramsey County Courthouse
Devils Lake  ND  58301
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email - ramsey@ndsuext.nodak.edu