What makes a recession? What's the biggest signal indicating the start of one?

[anycolour]

Hey. I'm new here, I couldn't find a forum for general questions, so I hope this is an appropriate place for this one.

I need help figuring out what a "recession" is actually made of. Can someone help me understand this. Also, what would you say is the biggest indicator for the start of a recession? E.g., the Yield Curve inversion?

Officially, the Early 2000s Recession was from March, 2001 to November 2001 (highlighted square), but as you see in the chart, the stock market continued declining for about another year after that (highlighted circle). Why is that subsequent period not considered part of that recession?

Unlike the Great recession around 2018 which officially lasted from Dec 2007–June 2009, (1 year and 6 months) which does officially capture the whole move down:

 

[jys78]

A recession usually defined as 2 consecutive quarters of GDP decline.

The relationship to stock market performance is not nearly so clear. For one thing, the dreaded "start of the recession" is usually only visible in hindsight.

Here's the thing: the WILL be a recession. Next month, next year, or some other time - we don't know and it shouldn't really matter anyway so long as you have a robust adaptable strategy.

 

[murray t turtle]

A recession usually defined as 2 consecutive quarters of GDP decline.

The relationship to stock market performance is not nearly so clear. For one thing, the dreaded "start of the recession" is usually only visible in hindsight.

Here's the thing: the WILL be a recession. Next month, next year, or some other time - we don't know and it shouldn't really matter anyway so long as you have a robust adaptable strategy.

%%
Exactly;
SPY/S&P 500 is as good a benchmark as any...………………………………………………………………………………………...

 

[ElectricSavant]

Long or short...give me volatility...

Thank You very much.

ES

 

[Overnight]

...

Here's the thing: the WILL be a recession...

Here's MY thing...There doesn't HAVE to be one! Gah, that is so maddening!

That's like saying that all the whales in the ocean MUST die from plastic poisoning before we clean up the plastic in the oceans.

Know what I'm sayin'? If we can just float along on a slow and steady GDP expansion of whatever percentage, say, 1% per year, with moderate income growth, moderate job creation, moderate unemployment...Everything in moderation. We don't need to spike all over the place between extremes!

Everyone just chill man!

 

[piezoe]

Peak corporate earning are one of the best leading indicators. Recession usually follows 12 to 18 months later. The thing that set's of the selling is somewhat variable, but a truly bad earning season can do it, or the market making a new all-time high and major players deciding it's time. The selling starts, and unlike what happens in simple corrections, it doesn't stop until we are trading under the 200 day average and there's no fast recovery. (Of course the Great Depression and the Great recession were atypical. In one, the financial system collapsed, in the other it threatened to collapse.) I like to calculate where the S&P should be based on uncompounded real GDP plus compounded inflation versus where it actually is. This gives me a suffciently accurate estimate of where the market should correct to in a major correction, (it typically goes right to a long term trend line, which, not surprisingly, can be rationalized by the aforementioned calculation. ) In a true recession, however, the market my become irrational, just as it always does in bull market, and then the market can sink lower then can be rationalized. The trick is to know what's the best reference point. That point at which the market is as close to rational as it will ever get.

 

[jys78]

If we can just float along on a slow and steady GDP expansion of whatever percentage, say, 1% per year, with moderate income growth, moderate job creation, moderate unemployment...Everything in moderation. We don't need to spike all over the place between extremes!

Here's the thing - we can't. There actually will be a recession, at least so long as the economy is comprised of human activity. We just don't know when.

 

[maxinger]

Thousands of experts have used indicators to predict when recession is coming over the past few years.
None have succeeded.

ANSWER : There is no such indicator.


To me, I just use simple observation;

- there will be lots of retrenchment
- many businesses will collapse
- brankruptcy lawyers will be very busy
- supply will be > demand ; goods and services will get cheaper
- property prices will get really dirt cheap

 

[piezoe]

Thousands of experts have used indicators to predict when recession is coming over the past few years.
None have succeeded.

ANSWER : There is no such indicator.


To me, I just use simple observation;

- there will be lots of retrenchment
- many businesses will collapse
- brankruptcy lawyers will be very busy
- supply will be > demand ; goods and services will get cheaper
- property prices will get really dirt cheap

You may be confusing a depression with a common recession.

 

[murray t turtle]

You may be confusing a depression with a common recession.

%% Could be;
but it sounds like he meant NO indicator predicts, not no recessions ever happened.