Recession Explained | What is a Recession? | Are We in a Recession Now 2023?

hello and welcome to illustrate to educate you've come to the right place for simple and objective videos on topics that matter lately you might be wondering what is a recession and are we headed into one now a recession can be hard to describe but typically economists define a recession as two or more consecutive quarters of negative growth rate of gross domestic product or GDP what is GDP in simple terms it is the total value of everything that a country produces others define a recession as a decline in economic activity lasting more than a few months the National Bureau of Economic Research and BER defines it by looking at GDP real income employment industrial production and retail sales next let's talk about the signals of a recession here are some of the indicators that should raise warning bells a recession might be imminent first is a decrease in GDP as mentioned earlier GDP is the total value of everything that a country produces for some this is the main factor before we can talk about this next one you have to understand a bit about what a bond is a bond is simply a loan given to a company or a government by an investor by issuing a bond a company or government borrows money from investors who in return are paid interest on money they've loaned well if a company issued bonds for $1,000 on a tenured timeline at an annual interest rate of 5% then the investor would make $50 a year or $500 by the time the loan was finished typically the interest rate slopes up on bonds indicating the investors want to higher interest rate for longer loans but before a recession this curve can invert expressing a lack of confidence in the economy here are three more warning signs that a recession might be coming employment data every month the Department of Labor publishes a report on the job market this report summarizes how many jobs were created in each sector and what percentage of the population was unemployed and how many hours were worked both full-time and part-time if businesses are less confident they're more Lito hire part-time another warning is confidence level while economics appear to be cold hard math it's also influenced by how people are feeling when consumers feel unsteady they are apt to pull back their spending which causes sales to follow lastly is the leading economic index which is another report that includes job data building permits stock prices and manufacturer orders among other things it helps indicate how healthy the economy is and how buoyant businesses feel so what causes a recession while the previously stated signals can set off those warning bells they don't actually cause a recession it's often the following economic situations that create a recession first is the inflation deflation cycle when the cost of goods and services rise this is known as inflation these rising prices mean that consumers have to spend more of their money to buy the same things they did before and can lead to spending cutbacks as they aim to stretch their budgets but then deflation can occur which reduces the value of things this can cause factories to produce less as consumers wonder where the bottom is ultimately waiting to spend their money fortunately the Federal Reserve Board is on the job tweaking interest rates in an effort to sustain equilibrium next let's talk about an asset bubble what happens when you blow a bubble and it gets too big it pops all at once that's what can happen when consumers are too confident in buying up a certain item such as real estate or stocks when it becomes clear that a specific asset isn't going to continue to rise in price a huge sell-off can happen and this creates a ripple effect that devalues the item and can send the economy into a recession there are two more things that might cause a recession the next is slowing manufacturing one closely watched report is the Institute for Supply Management's report on business this report tracks elements such as new orders production inventory supplier deliveries and prices keeping the Machine of industry humming is a key factor of a healthy economy so it can be worrisome when things slow down and the last cause is the loss of consumer confidence when consumers are worried about their economic future their job seems uncertain or their investments have lost value they tend to go into hibernation mode and stop spending of course when consumers stop spending businesses need fewer goods and services so they employ fewer people making everyone feel less secure about their jobs and the cycle continues what's the impact of a recession an economic downturn can seem devastating for both businesses and personal lives and of course the two are closely connected see a company makes bikes and starts seeing its sales and profits decline it will likely decide to make fewer bikes which means it needs fewer employees running the assembly line and selling the bikes to stores from there the effects ripple to other businesses such as a wheel manufacturer which will produce less wheels then bike retailers will have fewer bikes on their shelves so their sales decline and the bike maker might decide to stop research design and marketing for new bikes the livelihood of all those associated employees are then effective which can shake their confidence people are also less inclined to dine out travel or upgrade their homes they might even stop paying their bills causing further stress on the economy as this vicious cycle continues it can cause many problems including the decline in the stock market a typical consumer might lose their job or have their hours or wages reduced at that point they can have trouble paying their bills which leads to credit troubles and in extreme cases bankruptcy in 2020 we saw these effects as a result of the corona virus outbreak businesses were shutting down millions of workers were being laid off many people had less money to spend the government stepped in to try to mitigate the effects with a two trillion dollars plan that would send cash payments to Americans create a fund to lend to small businesses and increase unemployment benefits what is the average length of a recession the good news is that on average a recession lasts about 11 months according to the NBER but they can vary the Great Recession of 2008 lasted 18 months while the Great Depression of 1929 lasted ten years what is the difference between a recession and a depression a recession can become a depression but typically a recession is defined by the two plus quarters of decline a depression typically lasts several years not several months and the unemployment rate is typically far less in a recession compare the 11 percent from the 26 percent of the Great Depression what can you do to prepare for a recession the best strategy is to carefully budget and watch spending consider building an emergency fund and saving aggressively this is the time to be more mindful than ever about your spending focus on covering the essentials and cutting back on non essentials to help save more money possibly cut back on eating out and buying bulk within reason lastly have a back-up plan what would happen if you lost your job so learn a new skill or improve your marketability and also build up your emergency savings it's natural to feel fearful in the face of a recession but taking these steps now to safeguard your finances can help you feel more secure about the future did you find this video helpful consider subscribing to illustrate to educate by clicking on the button below click the bell to receive notifications and check out some of my other videos on the right by clicking on the links

Channel: Illustrate to Educate

Views: 24,550

Keywords: What is a Recession?, Are We in A Recession Now?, Recession 2020, Recession, What are the causes of a recession?, Stimulus Plan, What is the difference between a recession and a depression?, GDP, What is Gross Domestic Product?, NBER, National Bureau of Economic Research, Yield Curve, What is a Bond?, Department of Labor, Leading Economic Index, Inflation, Deflation, Asset Bubble, Unemployment Benefits, The Great Depression, The Great Recession, How does a recession happen?

Id: 3Bh_w9RDN5E

Length: 7min 44sec (464 seconds)

Published: Tue Apr 21 2020