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

[Ayn Rand]

We have been conditioned to think that a "recession" means the end of the world. A "recession" is just two quarters of reduced economic activity. It is easier to envision if you convert economic activity to imply income. Then you are saying that a "recession" is six months of reduced income. You made less money the last 6 months then the prior 6 months before.

Most people equate recession with depression. A depressions is a severe and prolonged downturn in economic activity. Severe is defined to be greater than or equal to 10% decline in economic activity.

Recessions/Depressions occur for different reasons. There is no single ex ante indicator. It is only after the fact that you can point to something and say - "Ah! This was signaling a noticeable decline in economic activity."

 

[morganist]

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:

A recession is acknowledged after two more quarters of negative economic growth in a row.

 

[Cuddles]

Doesn't a recession have an actual economic definition? It's not some abstract concept based perception. Last I recall was something like 3 quarters of decreasing GDP.

 

[morganist]

Doesn't a recession have an actual economic definition? It's not some abstract concept based perception. Last I recall was something like 3 quarters of decreasing GDP.

That is how I remember it, but apparently now it is just two quarters of negative economic growth. It may vary from one nation to another.

 

[anycolour]

Based on this chart, a recession happens when the 9EMA crosses the 20EMA on a Monthly chart.

Thoughts?

 

[schizo]

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:

20% drop in S&P. By then, you will see massive layoffs and consumer spending dwindling.

 

[Overnight]

20% drop in S&P. By then, you will see massive layoffs and consumer spending dwindling.

We already had that in 2018. A recession is classically defined as two consecutive quarters of negative GDP, as of this typing.

 

[Overnight]

Here is how a recession is avoided...Everyone taking a chill pill, and meditating on good music each morning before they start tap-tap-tapping away on their terminals.

 

[anycolour]

Is a 20% move down considered anything? A correction?
Refresh my memory please, what happened in late 2018 that caused that 20% move down?

As an aside: I plotted the % drops, and the 2000 + 2008 recessions both resulted in a down move of about 50%, so maybe that's what "really" makes or defines a recession - a 50% drop? Just thinking out loud.

Early 2000 Recession. /ES down to 770 from 1300
2008 Recession. /ES down to 685 from 1500

If such is the case, the next recession will be a real beauty. As of now, a 50% drop from 3400 would bring the /ES down to 1700.

Recession happens every 8-10 years. What the hell happened in late 2015 (7-8 years after 2008 recession)? The conditions for a new recession were forming, but nothing happened. Did the Federal Reserve manipulate more than they usually do then to avoid a recession?

If we ignore the 2015 occurrence (what maybe should have been a new recession) one could then argue 10 years after 2008, we arrive at the late 2018 occurrence. Conditions were forming then as well for a new recession, but nothing happened then either. Did the Federal Reserve come to the "rescue" there again?

Thanks

 

[Overnight]

Is a 20% move down considered anything?

If we ignore the 2015 occurrence (what maybe should have been a new recession) one could then argue 10 years after 2008, we arrive at the late 2018 occurrence. Conditions were forming then as well for a new recession, but nothing happened then either. Did the Federal Reserve come to the "rescue" there again?

Thanks

In general, a 10% drop is a correction, and 20% is a bear.

2015/16 was China manipulating their currency, IIRC.

2018 Q4 was the Fed when they started raising interest rates after a 10 year hiatus. The markets had gotten so used to near-zero lending rates that any challenge to that was seen as a sign to flee equities. I do not understand the dynamics of why on that one.

The 2019 ones are easier. Trump and the trade war.