What Is a Recession? What Business Owners Must Know

business and recession


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A recession is defined as a severe and long-term fall in economic activity, which is frequently accompanied by negative GDP, rising unemployment, declining retail sales, and decreasing economic production.

It is a normal stage of the economic cycle: it occurs after periods of growth or following events such as bubbles, crashes, or pandemics.

How Often Do Recessions Occur?

Including the expected one this year (the conference board rates the likelihood of a recession at 96%), the US economy has officially entered a recession 13 times since 1933, almost every seven years. According to CNBC, the following have occurred:

Name Years
Great Recession Dec 2007 – Jun 2009
Dot-com bust recession Mar 2001 – Nov 2001
Gulf War recession Jul 1990 – Mar 1991
Energy crisis recession Jul 1981 – Nov 1982
1980 Recession Jan 1980 – Jul 1980
Oil embargo recession Nov 1973 – Mar 1975
During 1969-1970 Dec 1969 – Nov 1970
During 1960-1961 Apr 1960 – Feb 1961
During 1957-1958 Aug 1957 – Apr 1958
Post-Korean War Jul 1953 – May 1954
Post-WWII slump Nov 1948 – Oct 1949
Post-World War II Feb 1945 – Oct 1945
The Roosevelt recession May 1937 – Jun 1938

This list highlights the economy’s collective ability to recover, as shown in the 1980s following the energy-fueled recessions of the 1970s and the late 2000s following the dot-com recessions that began the millennium. It also demonstrates that they do not continue forever and are typically declared finished just a few months after they begin.

How Are Recessions Defined?

In a 1974 New York Times article, then-Bureau of Labor Statistics Commissioner Julius Shiskin offered four indicators:

  • Two consecutive quarters of falling gross national product (GNP)
  • Six months of falling manufacturing output
  • A 2% increase in unemployment (minimum of 6%)
  • Non-agricultural employment has been falling in 75% of industries for six months.

Shiskin’s definition of a recession has since been narrowed to two consecutive quarters of decreasing GDP, which is how many experts define it.

However, the White House published an article titled “How Do Economists Determine Whether the Economy Is in a Recession?” in July 2022. opposing Shiskin’s definition of it, claiming that “while some say two consecutive quarters of falling real GDP constitute an economic decline, that is neither the official definition nor the way economists evaluate the state of the business cycle.

It goes on to support the National Bureau of Economic Research’s (NBER) definition of an economic decline as a major fall in economic activity that spreads across the economy and lasts more than a few months.

In comparison to Shiskin’s criteria, the NBER’s is more holistic, allowing for more leeway. It is purposefully broad in order to allow for more data and evaluation of other economic variables without imposing rigid rules or criteria.

Economic Drepession

Who Determines If/When We Are/Were in Recession?

The role has been assigned to a small committee of eight hand-picked economists with expertise in macroeconomics and business cycle studies since 1978. The committee is known as the Business Cycle Dating Committee (BCDC), and it is a subsection of the National Bureau of Economic Research (NBER).

NBER has up-to-date information on the active Dating Committee members.

The committee’s role is to detect the peaks and troughs of an economic cycle, which necessarily suggests a recession, rather than to characterize it.

To identify these patterns, the BCDC compiles real economic information as well as data from federal institutions such as:

  • Personal income less transfers (PILT) in real terms
  • Figures for nonfarm payroll employment
  • Measured by household employment
  • Personal consumption expenditures in real terms
  • Adjusted for pricing adjustments, wholesale-retail sales
  • Reports on industrial production

BCDC publishes its entire data set, but gives no context for how each statistic is weighted or used in its analysis.

The BCDC does not rush to declare an economic decline or expansion because its role is to identify economic inflection points. Instead, before announcing any contraction or expansion date, the committee evaluates and deliberates the findings for extended periods of time.

For example, following the 2007-2008 housing market meltdown, the BCDC declared on November 28, 2008, that the United States had started an economic decline in December 2007—nearly 12 months later.

Why Does It Matter If There Is an Official Recession?

Is the pain felt by all businesses? No. During the Great Recession, in fact, a number of huge businesses that we can’t imagine life without today received the traction they needed to become household names.

To be honest, whether or not an economic decline is formally declared has little consequence. What matters is how firms and consumers navigate the economy, whether it is in good or bad shape. When clients and/or possibilities become more difficult to locate and your monthly revenue suffers as a result, it’s time to act.

How? One option is to focus more on brand development, which you’ll have time to accomplish while the economy recovers. There are two compelling reasons for this:

  • Taking action will keep you too occupied to worry about a circumstance over which you have no control.
  • According to John Quelch, Dean of firm School at the University of Miami, “It’s well documented that investing in your business during a recession while competitors are cutting back can yield a greater ROI at a lower cost than investing in your business during good times.”

Another option is to figure out how to get money when revenues are down.

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