In the past couple weeks the only word coming out of the mouths of financial news outlets is “Recession”. Many associate recession with a bearish stock market and housing market, however what exactly is a recession? A recession occurs when the GDP reports a loss in two consecutive quarters. In order for a loss to occur in the quarterly GDP report, there would be high unemployment and decreased spending within consumers. These factors put a strain on many big time corporations, because not only are they losing their labor but they are also not seeing as much profit due to the fear that comes with the word “recession”.
The first stage of a recession is of course the recession itself. As mentioned before this term is associated with a decrease in confidence throughout consumers and also is associated with lower activity throughout the economy in general. The second stage of a recession known as the Trough, is essentially the peak of the recession. During a recession, no one truly knows when the trough of a recession is, however business cycle graphs point this stage out once the recession cycle has ended. In the case of the great 2008 recession that most are familiar with, this trough occurred in 2009 as “The net worth of US households and nonprofit organizations fell from a peak of approximately $69 trillion in 2007 to a trough of $55 trillion in 2009.”(Federal Reserve History).
Following the trough or peak of a recession is obviously the first stage of recovery. In this stage of recovery generally those who were laid off from their previous jobs start to find new jobs which increases the labor force of companies once again. Due to the vast amount of people that were laid off in the initial stage of a recession, this recovery process can take anywhere from months to even years. Expansion, or the second stage of recovery is what we often associate with a bullish market. In this stage, the majority of those who had been laid off have found new jobs, and the GDP is now delivering positive quarterly returns due to the increase in employment and increase in spending once again. Lastly, there is a peak of thos recovery or a climax of a bullish market. In this stage, many seem to be thriving unaware of the horrors that will follow in the following months. If I were to make a guess I would say that November 2021 was arguably the “peak” of recovery for the previous recession cycle. I say this because not only were new assets like cryptocurrencies at an all time high, but also the S&P 500 and the DJI were both nearing all time highs around this time as well.
In the end, it is important to note that even though recessions are inevitable, only those on the higher end of socioeconomic scale are “recession-proof”. The average citizen working their average 9-5 will always be the most affected by this stage of the business cycle.
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