Thursday, January 17, 2008

The R-word

Recession. Yes, I said it. And, I just might be contributing towards it… with this blog. “An interesting indicator, the “R-word” index” -- the number of stories appearing in print that use the word “recession” -- has spiked in early 2008.” According to The Economist, this simple tool has forecasted the start of the recessions in 1981, 1990 and 2001.

A recession occurs when the gross domestic product (GDP) declines for two or more consecutive quarters. The GDP is the value of all the reported goods and services produced in a country. Some market indicators that signal the onset of a current recession include: a spike in oil prices, the news of major financial companies taking huge losses due to subprime mortgage defaults, slumping home values, and consumers' purchasing power being lowered by high energy and food prices. If all this is happening, it's a good bet that companies have laid people off, so unemployment is up too.

There have been 11 recessions since 1945, and they are an expected part of the economic cycle. The National Bureau of Economic Research says that “the US economy follows a somewhat regular pattern of expansion and contraction. The economy will typically expand steadily for six to ten years and then enter a recession for six months to two years.”

Since it isn’t beneficial for a nation to be in recession, governments will normally take action to get the economy going again. Ben S. Bernanke, chairman of the Federal Reserve, recently stated that he supports tax cuts or other measures to stimulate the economy. It is widely anticipated that Federal Reserve will reduce interest rates at the Federal Open Market Committee meeting on Jan. 30. The New York Times reports that “on Wall Street, investors are betting that the central bank will reduce overnight lending rates to 3.75 percent from 4.25 percent.”

The R-word is here, Recession.

Related Posts: It's the economy, stupidWhat is this credit crisis you speak of, and why do I care?Don't forget about your petAn economic recovery plan, in a cup; Penny Pinchin' Times

1 comment:

Casey said...

This post was featured in the January 22 edition of BostonNOW on page 9.

Go John!