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What is a Recession?


What Is A Recession?

A recession is a significant, widespread, and prolonged downturn in economic activity. A popular rule of thumb is that two consecutive quarters of decline in gross domestic product (GDP) constitute a recession. Recessions typically produce declines in economic output, consumer demand, and employment.  

Key Indicators Of Recession

When these key indicators decline, it usually signals that households are spending less money and businesses are investing less. The reduced demand for goods and services leads to layoffs and a decrease in production. A recession usually starts with a drop in housing prices, which then leads to defaults and foreclosures. As more people lose their homes, they have less money to spend, which further reduces demand and deepens the recession. 

The Impact Of Recession

While recessions are typically short-lived, they can cause long-term damage to an economy. For example, businesses may close permanently, leading to job losses that may take years to recover from. Families may also find it difficult to rebuild their savings after a recession. As a result, it is important for governments and central banks to take action when an economy begins to slow down in order to avoid a full-blown recession.

How Long Do Recessions Last?

The average U.S. recession since 1857 lasted 17 months, while the six recessions since 1980 have lasted less than 10 months on average.

What Happens in a Recession?

Economic output, employment, and consumer spending drop in a recession. Interest rates are also likely to decline as the central bank (the Federal Reserve in the U.S.) cuts its benchmark rate to support the economy. The government's budget deficit widens because tax revenues tail off, while spending on unemployment insurance and other social programs rises as more people qualify for the benefits.


How To Combat Recession

Many people believe that the only way to stop a recession is through government intervention. However, there are a number of steps that individuals can take to help combat the effects of a recession. One of the most important things that people can do is to stay informed. By keeping up with the news and understanding the economic conditions, people can make more informed decisions about their finances. 

Another important step is to make wise choices about spending and saving. People should try to save money during good economic times so that they will have a cushion to fall back on during difficult times. Finally, people should support businesses that are struggling. This can be done by shopping at local businesses and avoiding large corporations.  If you are planning on purchasing or selling a home, then you will want to use a local REALTOR and Lender.  They in turn will use local Escrow Companies and local handymen/contractors or other local professional services that will be needed.  This keeps the money local helping your local economy.  By taking these steps, individuals can help to curb the cycle of recession and encourage local economic growth.

 

 

 

Karen Jones, a Licensed Mortgage Loan Officer (NMLS 307015| AZ Lic 0914383), is located in  Scottsdale and has been serving Arizona with their home lending needs for over 40 years.  As a Certified Mortgage Advisor, Karen is dedicated in ensuring that her clients are well educated and prepared for their new home loan decision.   AmeriFirst Financial, Inc. Grayhawk Office located in Scottsdale, Arizona. 

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The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Karen Jones does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision.  Karen Jones will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein. 

Karen Jones is a licensed loan originator at AmeriFirst Financial. Karen Jones complies with all regulations and rules of all government agencies and regulators including the Real Estate Settlement and Procedures Act. The services provided by Karen Jones are not a condition, nor do they create any obligation for any form of remuneration for any real estate settlement service related to any referral.