A Guide To Economic Recessions

Table of Contents

. Economic Recession Definition

. How Do Recessions Happen?
. What Happens During a Recession?
. U.S. Historical Recession Examples
. Global Recession Examples
. How Do Recessions Impact Investors & Non-Investors?
. Bottom Line
.

Recessions are painful. People lose jobs, can't pay bills, and some lose their homes.
There's less money for luxuries like vacations or nights out on the town, and less
money for essentials such as food and medical care. In this article, we explore what
economic recessions are, what the signs are that one is coming, and what you can do
to best ride it out.
DNY59/E+ via Getty Images

Economic Recession Definition

一标准

A recession is a serious decline in economic activity that lasts longer than a few
months. It is measured by drops in these five economic indicators:

1) Real gross domestic product (GDP) ↓

2) Income ↓（check）
3) Employment (非农数据) ↓
4) Manufacturing (PMI ：大宗原料回落+ Energy)
5) Retail sales 日常用品（CPI ↑,消费信心指数 ↓）

REAL GDP ↓ = C↓+I↓ +G +(X↓-M↑) = Recession

二分析：
Q1 GDP ：

2.1）-1.6 % （X-M）历史新高 ，US Dollar $108,export fall + import rise

2.2）Consumption : 2.09% + Investment : 0.1 %

结论：这也意味着如果只看内需，一季度美国经济增长仍然保持了一定的正向动能，所以当时美国经
济似乎没有衰退的风险，甚至逆差显著扩大也是内需太强所致。（Domestic strong needs）

Q2 GDP ：到底算不算 starting 计算 （非农？+ 逆差抵消）

2.3） X-M 下降 ：国国内供应链的修复、供求关系的缓和

2.4） Consumption : 预测差 （可支配、存款占比、消费者信心，非农数据）

2.5） Investment：2022 年 6 月美国 ISM 制造业 PMI 跌至 53，创下 2020 年 7 月以来新低，表明

企业扩张速度明显放缓。其中，制造业 PMI 分项中的新订单指数跌至 49.2，这一前瞻性指标位于荣枯
线之下，预示未来企业活动可能转向收缩

结论： Q2 可能衰退，取决去非农&进出口逆差（亚特兰大联储的 GDPNow 模型 check）

三 因素：Inflation

3.1 Contraction Monetary Policy : Accelerate recession （加息缩表=AD ↓）

3.2 Stop interest rate ↑ = Stop AD ↓= Control inflation

3.3 结论： Control inflation= Control recession 加速

四 控制： Inflation

4.1 组成部分：谁让我 inflation 结构 core inflation = Energy

4.2 怎么控制：

4.2.1 俄乌停战 ：普京策略 （1-2 年，今年冬天持续）

4.2.2 OPEC 增产： check （7.15）profit + 粮荒+capital investment (背后

motivation）

4.2.3 伊朗协商 ：谈崩了

4.3 Interest rate ： 1.减少非核心 Inflation(insignificant ) 2. 行为经济（check

theory as nudge theory ）维稳

五 滞胀：Stagflation

5.1Stagnant

5.2inflation
5.3Recession

六 衰退：Recession

6.1 技术性

6.2 全面性

作业：check 目前位置世界主要国家： 进入技术性衰退 ；全面性衰退

6.3 衰退程度：下滑指标覆盖三个维度——深度、扩散和持续时间

Study：

1）Recession 标准
2）Study :

2022 Q1 : Real GDP ↓ ；但没有计算开始衰退？

2022 Q2 :Real GDP ↓ ：算不算开始进入衰退 2 quarter

3）Study ：

EUR 已经进入衰退，double check（课后）

Headquartered in Cambridge, Massachusetts is the National Bureau of Economic

Research (NBER). It is a private, nonprofit research organization that disseminates
economic research to public policymakers, business professionals, and the academic
community. It is NBER that officially declares the beginning and the end of
recessions, and its definition of a recession is:

... a significant decline in economic activity spread

across the economy, lasting more than a few months,
 normally visible in real GDP, real income, employment,
industrial production, and wholesale-retail sales.

1. 国家立场
2. Recession 持续度
3. Recession 原因
4. Recession 判读 standard
US 衰退
1. US dollar (影响）rate （强势 appreciation=contraction monetary policy 紧缩性货币政策=
interest ↑ =exchange rate ↑）
Inflation ---Interest↑（FOMC 央行 0.75% --1% ）0% --2% ---AD ↓ （GDP ↓ =C↓ + I ↓+E↓
（美元贵了，出口贵了））= recession 大
原因：
2022 Q1
GDP ↓ -1.6%
1. Export - import = -3.23% (贸易逆差 deficit )
2. C ↑= +2.09 % （国内需求 strong）
3. I ↑ =+0.1% （国内投资 ok）
结论： 2022 年 Q1 来考虑，美国国内经济增长还有动力，并不能证明，是衰退。
因此，并不是 real GDP 是 negative 就一定衰退，需要看 GDP 结构

AD ↓ ---Interest ↓ ---depreciation

民间： 两季度 REAL GDP /Nominal GDP ( NEGATIVE)

=recession
Inflation：GDP -INFLATION =2% - 8.6% =-5.4 %
1.1% -9.1 =-8.0 %

1. Recession 了吗?
2. 传统：Real GDP 2 Quarters 是 negative = 衰退
3. 标准：
3.1 Real GDP = 2% - 8.6% =-5.4%
3.2 Real Income = C ↑= +2.09 % （国内需求 strong）
3.3 Employment 就业率 C ↑= +2.09 % （非农指标：↑）
3.4 industrial production ：I ↑ =+0.1% （国内投资 ok）
3.5 wholesale-retail sales：零售业（Walmart）：C ↑= +2.09 %

Walmart ： 21 Q4 :3 亿营业额 ---1 亿 收入

22 Q1: 3.5 亿营业额- 0.8 亿 收入

结论： 消费能力没有下降，企业 profitability 没有增加，反而减少

总结论： 2022 Q1 :1 个指标符合 Recession 衰退

4 个指标不符合 Recession 衰退

不能把 Q1 计算入衰退的第一个 Quarter

4. Q1 不算衰退？ 为什么大家都在讨论美国衰退？ Q2 以后数据

4.1 Q2 CPI 40 年新高 =9.1%
4.1.1 FOOD & Energy price increase significant ，not easy to

Drop down (supply shortage ，Demand 还是 strong ，price will

not decrease = US cannot control price = inflation 短期解决不
了）

4.1.2 Cost -push inflation = Raw material + transportation

(petrol)+ labour cost = Firm profit 被挤压 =企业开始裁员（特斯
拉 10% ；FB;Intel 1% ;冻结人事招聘）
4.1.3 裁员↓ --- 生产↓-----收入↓----购买力↓-----衰退

Discuss：1）US 衰退，对于其它国家 impact 2） EU 衰退 3) CH

impact

GDP, or gross domestic product, is the monetary measure of the market value of all
the final goods and services produced by a country within a specific period. "Real"
GDP means that the effects of inflation on that figure have been removed.

GDP is usually calculated annually, but it can be calculated quarterly as well. During
some quarters, GDP is negative while, in other quarters, it is positive. Because of
these fluctuations in quarterly GDP, NBER keeps a close eye on the other four
components of a recession: income, employment, manufacturing, and retail sales, all
of which are reported monthly.

How Do Recessions Happen?

Recessions occur when the following events occur:

. A drop in real income: Real income is income that is adjusted for inflation, and with
Social Security and welfare payments removed; when real income falls, consumers cut
back on purchases, lowering demand.
. Lower employment: A fall in employment numbers and an increase in requests for
unemployment insurance assistance.
. A drop in manufacturing: As measured by the Industrial Production Report which is
issued by the Federal Reserve.
. Lower wholesale-retail sales: These figures are adjusted for inflation and they reflect
companies' responses to consumer demand.
. A drop in monthly GDP estimates: NBER looks at monthly estimates of GDP which are
provided by Macroeconomic Advisers.
What isn't reflective of a recession is the behavior of the stock market. This is
because stock prices are based on the anticipated earnings of public companies, and
they reflect either investors' exuberance or pessimism. During a recession, the stock
market may enter what is known as a bear market, which occurs when the market
declines by 20% or more over a period of at least two months. Large declines in the
stock market can contribute somewhat to a recession because investors lose
confidence in the economy.

5 Recession Stages
A recession is an integral part of the economic cycle, which is also known as
the business cycle. It is comprised of these stages:

 Recession: growth slows, the rate of employment falls, but prices stagnate, meaning
they stay the same
 Trough: the economy hits its lowest point
 Recovery: growth begins again
 Expansion: the economy grows rapidly, interest rates are low and production goes up,
however, inflationary pressures are building
 Peak: when growth hits its maximum rate, imbalances in the economy occur that will be
corrected by a recession

What Happens During a Recession?

The first inkling of a recession may appear in manufacturing job numbers. This is
because manufacturers receive orders months in advance and, when manufacturing
orders decline, so do factory jobs. Those who have lost their jobs cut back on
spending and this affects other sectors of the economy.
When consumer demand falls, businesses stop hiring, unemployment rises, and
consumer spending drops even further. It is at this point that businesses start filing
for bankruptcy and people default on mortgage payments. Possibly the worst effect
of a recession is on recent college graduates who can't find a decent job.

U.S. Historical Recession Examples

1. 2020 Pandemic Recession
The Covid-19 pandemic caused the worst recession since the Great Depression with
the U.S. economy contracting by record amounts in 2020. In April 2020, 20.8
million jobs were lost, and the unemployment rate reached 14.7%. The
unemployment rate remained in the double digits until August 2020.

The stock market experienced what is now known as the 2020 stock market crash.
To combat this recession, the Federal Reserve lowered the fed funds rate to 0% and
Congress issued $3.8 trillion in aid. In response to these measures, in Q3 2020, the
economy grew by 33.1%.

2. 2008 Great Recession

The Great Recession began in December 2007 and lasted until June 2009.
The subprime mortgage crisis and the widespread use of derivatives triggered a bank
credit crisis which then spread to the global economy.

In 2008, GDP shrank in Q1, Q3, and Q4, dropping 8.4% in Q4. In 2009, GDP dropped
in Q1 and, in October 2009, the unemployment rate reached 10%. In Q3 2009, GDP
became positive and NBER declared the recession over.

3. 2001 Dot-Com Bubble Burst Recession

Lasting just eight months, from March 2001 to November 2001, the economy
contracted by 1.1% in Q1 2001 and by 1.7% in Q3 2001. This recession was caused by
a boom followed by a bust in dot-com businesses. Part of that boom was caused by
companies' concerns over the change from "19XX" dates to "20XX" dates in their
computer software. This recession was further exacerbated by the attack on 9/11.

4. The 1990-1991 Recession

This recession began in July 1990 and lasted until March 1991. It was caused by the
1989 savings and loan crisis, which led to higher interest rates, and the Iraqi invasion
of Kuwait which led to the Gulf War. In Q4 1990, GDP dropped by 3.6% and, in Q1
1991, it dropped by 1.9%.

5. The 1980-1982 Recession

This was essentially two recessions, with the first occurring from January through
June of 1980, and the second beginning in July 1981 and lasting until November
1982. This recession was caused in part by the Federal Reserve's attempt to combat
inflation by raising interest rates.

During the 12 quarters, four each in 1980, 1981, and 1982, GDP was negative in six,
with the worst being Q2 1980 when it fell by 8.0%. In November and December
1982, unemployment reached 10.8% and it remained over 10% for 10 months. This
recession was exacerbated by the Iranian oil embargo which reduced U.S. oil
supplies, driving up prices.

6. 1973 Nixon/OPEC Embargo Recession

Beginning in November 1973 and lasting until March 1975, this recession was
initiated by the OPEC oil embargo which caused oil prices to quadruple. Actions
taken by then-president, Richard Nixon, were also causative factors with the wage
and price controls he initiated keeping prices too high and this reduced demand. The
wage controls kept salaries too high which caused companies to lay off workers.

President Nixon also took the U.S. off of the gold standard which caused the price of
gold to skyrocket while the dollar's value fell, leading to inflation. In Q3 1973, GDP
fell by 2.1%, in Q1 1974, it fell by 3.4% and this was followed by falls in Q3 1973
of 3.7%, 1.5% in Q4, and 4.8% in Q1 1975.

7. 1929 Great Depression

The difference between a recession and a depression is that, during a recession, the
economy contracts for two or more quarters while, during a depression, the
economy contracts for several years.

Between 1929 and 1938, two recessions battered the U.S. economy. During the first
downturn, between August 1929 and March 1933, GDP was down by 12.9% and
unemployment peaked at 24.7%. Unemployment remained in the double digits until
1939.

Several factors created the Great Depression. In the Spring of 1928, the Federal
Reserve raised interest rates, then the stock market crashed in 1929, wiping out
people's life savings. This was compounded by a 10-year-long drought in the
country's breadbasket, the Midwest, which devastated farmers and created the
infamous Dust Bowl.

President Franklin D. Roosevelt's New Deal boosted growth by 10.8% in

1934, 8.9% in 1935, 12.9% in 1936, and 5.1% in 1937. It took until the end of the
drought in 1937 to finally end the second recession, and it was at that same time
that the government increased spending in the ramp-up to World War II.

Global Recession Examples

The International Monetary Fund defines a global recession as "a decline in annual
per-capita real world GDP (purchasing power parity weighted), backed up by a
decline or worsening for one or more of the seven other global macroeconomic
indicators: industrial production, trade, capital flows, oil consumption,
unemployment rate, per-capita investment, and per-capita consumption".

According to that definition, since World War II there have only been four global
recessions: in 1975, 1982, 1991, and 2009. All lasted only a year, but 2008's Great
Recession was by far the worst due to the number of countries affected and the
decline in real-world GDP per capita.

How Do Recessions Impact Investors & Non-

Investors?
During recessions, investors usually sell speculative investments and move into safer
securities, such as government bonds. Equity investors eschew risk and move into
well-established, high-quality companies that have strong balance sheets and little
debt. Companies that have significant debt and weak cash flow may be unable to
handle their debt payments along with the cost of continuing operations.

During recessions, one area of the stock market that generally remains stable is
consumer staples. These include: food, beverages, household goods, alcohol, and
tobacco, which are products that consumers tend to buy regardless of their financial
situation and they are the last products that consumers eliminate from their
shopping lists.

Who Benefits From a Recession?

Those who have positioned themselves to profit from economic struggle may benefit
from a recession. However, history has shown that it is very difficult, if not
impossible, to consistently time these events. A recession may slow inflation as less
money is circulating throughout the economy. The Federal Reserve attempts to stop
recessions by stimulating the economy by lowering taxes, spending on social
programs, and not considering the budget deficit. In response to the Great
Recession, in 2009, Congress passed the economic stimulus package known as
the American Recovery and Reinvestment Act.

Bottom Line
Even though recessions are a part of the economic cycle, living through them isn't
always easy. Knowing the signs of a coming recession can help both investors and
non-investors alike take steps to avoid the worst effects of a recession such as paying
down debt and avoiding speculative investments.
This article was written by

Disclosure: I/we have no stock, option or similar derivative position in any of the
companies mentioned, and no plans to initiate any such positions within the next 72
hours. I wrote this article myself, and it expresses my own opinions. I am not
receiving compensation for it. I have no business relationship with any company
whose stock is mentioned in this article.

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