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FINANCIAL

Recession: What Does It Really Mean?

October 1, 2010

What Is a Recession?
The definition of a recession is when gross national product (GNP) declines for two consecutive quarters. GNP is defined as the total market value of all final goods and services produced in a given period of time, and is a useful way to measure the size of the U.S. economy. When we have reached the technical definition of a recession, it means that the U.S. economy is shrinking and producing fewer goods and services.

One problem with this definition is that there can be a serious decline in economic activity without two consecutive quarters of negative growth. For example, what if the GNP declines 3% in the first quarter, rises 1% in the second quarter, and declines 2% in the third quarter? This may not meet the technical definition of a recession, but it probably feels like one to the average American.

Another issue is that while the entire U.S. economy might not be experiencing a recession, the industry your job depends on can be stuck in a recession of its own. So while no one is talking about a recession in the media, the discussion among your colleagues and at home can revolve around the recession that you experience every day.

The Cycle of Recessions and Expansions
The U.S. economy alternates between expansion and recession. It’s either growing or contracting. Almost everyone prefers it when the economy is expanding. That usually means there are lots of jobs and lots of opportunities for most everyone. But all good things must come to an end. Every expansion is following by a recession. There is a silver lining during a recession; sometimes, by the time a recession has been announced, the economy has already started to recover. And compared to recessions, expansions have lasted much longer than the average recession (approximately five times longer.) 

Recessions by the Numbers*
The shortest recession: 6 months
The longest recession: 16 months
The average recession: 10 months
The average expansion: 57 months

Is There Any Good News During a Recession?
There is some encouraging news about recessions in today’s world. In recent years, the U.S. government has done a better job of managing recessions so they have less of an impact on the average American and are over sooner. For example, the 6 recessions from 1919-1945 lasted on average 18 months compared to the 10-month average since 1945.* Additionally, inflation tends to be lower during recessions, so the cost of everything we buy doesn’t increase faster than we can afford.

While none of us look forward to a recession, there is reason to keep hope alive. Compared to earlier times, recessions are generally over faster, hurt less, and are always followed by an expansion that usually lasts much longer than the recession.

Larry Wajsman
CERTIFIED FINANCIAL PLANNER
(770) 326-7315  or larry.wajsman@cunamutual.com.

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* Source: Data from 1945 – 2001, US Business Cycle Expansion and Contractions, National Bureau of Economic Research, Dec 1, 2008.

Larry Wajsman is  a CERTIFIED FINANCIAL PLANNER professional and Financial Advisor with MEMBERS Financial Services located at Associated Credit Union.  If you have any questions, or would like to provide feedback, regarding the information presented in this article, you may contact Larry Wajsman  at (770) 326-7315  or larry.wajsman@cunamutual.com.

Representative is not a tax advisor or legal expert. For information regarding specific tax situations, please contact a tax professional. For legal advice, consult an attorney.

Representatives are registered, securities are sold, and investment advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA /SIPC , a registered broker/dealer and investment advisor, 2000 Heritage Way, Waverly, Iowa 50677, toll-free (866) 512-6109. Nondeposit investment and insurance products are not federally insured, involve investment risk, may lose value and are not obligations of or guaranteed by the financial institution. CBSI is under contract with the financial institution, through the financial services program, to make securities available to members.

FR010922-98E4

 

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