The Recession - 2008…

In economics, the term recession generally describes the reduction of a country's gross domestic product (GDP) for at least two quarters. The usual dictionary definition is "a period of reduced economic activity", a business cycle contraction.

The U.S.-based National Bureau of Economic Research (NBER) defines economic recession as: "a significant decline in [the] economic activity spread across the economy, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales."

A recession is characterised by rising unemployment, increase in government borrowing, decrease of share and stock prices, and falling investment.  All of these characteristics have effects on people

In macroeconomics, a recession is a decline in a country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year.

An alternative, less accepted definition of recession is a downward trend in the rate of actual GDP growth as promoted by the business-cycle dating committee of the National Bureau of Economic Research. That private organization defines a recession more ambiguously as "a significant decline in economic activity spread across the economy, lasting more than a few months." A recession has many attributes that can occur simultaneously and can include declines in coincident measures of activity such as employment, investment, and corporate profits. A severe or prolonged recession is referred to as an economic depression.

Some recessions have been anticipated by stock market declines. In Stocks for the Long Run, Siegel mentions that since 1948, ten recessions were preceded by a stock market decline, by a lead time of 0 to 13 months (average 5.7 months). It should be noted that ten stock market declines of greater than 10% in the DJIA were not followed by a recession.

The real-estate market also usually weakens before a recession. However real-estate declines can last much longer than recessions.

Since the business cycle is very hard to predict, Siegel argues that it is not possible to take advantage of economic cycles for timing investments. Even the National Bureau of Economic Research (NBER) takes a few months to determine if a peak or trough has occurred in the US.

During an economic decline, high yield stocks such as financial services, pharmaceuticals, and tobacco tend to hold up better. However when the economy starts to recover and the bottom of the market has passed (sometimes identified on charts as a MACD), growth stocks tend to recover faster. There is significant disagreement about how health care and utilities tend to recover. Diversifying one's portfolio into international stocks may provide some safety; however, economies that are closely correlated with that of the may also be affected by a recession in the.

There is a view termed the halfway rule according to which investors start discounting an economic recovery about halfway through a recession. In the 16 U.S. recessions since 1919, the average length has been 13 months, although the recent recessions have been shorter. Thus if the 2008 recession is an average one, the downturn in the stock market should bottom around November of 2008. However some economists fear that this recession may last longer.

In 2008, an economic recession was suggested by several important indicators of economic downturn. These included high oil prices, which led to drastic high food prices (due to a dependence of food production on petroleum, as well as using food crop products such as ethanol and biodiesel as an alternative to petroleum) and global inflation; a substantial credit crisis leading to the drastic bankruptcy of large and well established investment banks as well as commercial banks in various, diverse nations around the world; increased unemployment; and signs of contemporaneous economic downturns in major economies of the world, a global recession.

In December, the NBER declared that the world's largest economy, the United States, had been in recession since December 2007.

Unemployment

The International Labour Organization predicted that at least 20 million jobs will have been lost by the end of 2009 due to the crisis - mostly in "construction, real estate, financial services, and the auto sector" - bringing world unemployment above 200 million for the first time.

Even a mild recession in 2008 would add 3.2 million workers to national unemployment by 2010, according to a new report from the Center for Economic and Policy Research. A severe recession, the group estimates, could make 5.8 million more workers unemployed by 2011.

"What We’re In For: Projected Economic Impacts of the Next Recession," by John Schmitt and Dean Baker paints a grim economic picture in the event that the United States falls into a recession this year.

Along with a sharp rise in unemployment, a recession in 2008 would eventually result in 4.7 to 10.4 million more men, women, and children living in poverty, at least 4.2 million people losing health-insurance coverage, and a drop in the inflation-adjusted median family income of between $2,000 and $3,700 per year. The estimated effects would extend as far as 2010 or 2011, depending on the severity of the downturn.

“For financial markets and employers recessions are fairly short-term events,” noted Schmitt. “For labor markets and workers, though, recessions have historically been long and painful.”

Most of the job losses are in the manufacturing sector, which lost 61,000 jobs this year.  In the manufacturing industry, Miami Herald cited 20 percent of job loss even though the export numbers are increasing.

Even though the pay or salary is increasing, a 3.6 percent increase compared to 2007 salary, it is insufficient compared to the fast rate of increase in the prices of primary commodities.  The consumers’ buying power is still low.  Food and beverage costs are 5.8 percent higher than 2007.

For those who were left employed and thanking their lucky stars, there is still a hitch. Companies are already cutting the health coverage for their employees. Currently, $694 and $3,281, respectively, according to the most recent data by the Kaiser Family Foundation.

Return of volatility

For a time, major economies of the 21st century were believed to have begun a period of decreased volatility, which was sometimes dubbed The Great Moderation, because many economic variables appeared to have achieved relative stability. The return of commodity, stock market, and currency value volatility are regarded as indications that the concepts behind the Great Moderation were guided by false beliefs.

Economic governance

In the final quarter of 2008, the financial crisis saw the G-20 group of major economies assume a new significance as a locus of economic and financial crisis management.

Economic stimulus plans were announced or under discussion in China, the United States, and the European Union. Bailouts of failing or threatened businesses were carried out or discussed in the USA, the EU, and India.

**DM