Like, I understand the gist, poor economic growth, people stop spending money and then businesses stop receiving consumer money so then layoffs occur, I think? But is there an exact formula, such as first this happens, then second this happens, etc. When do everyday people begin to feel the effects, and when do we know we are for sure in a recession? Is what’s happening now similar to 2008?
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The usual definition is two straight quarters of shrinking GDP.
There’s no exact formula. There’s no fixed pattern to how it starts. What we do know is that once everyone starts pulling back from spending, there is a recession. Your spending is a business’s income from which they pay the next person’s wages. So if everyone starts pulling back, well business start laying off, which makes everyone have less, and people start pulling back even more. Its a vicious cycle.
What makes everyone start pulling back at the same time. That can be anything. e.g. people panicking over the effect of tarriffs, people worried about uncertain future and preferring to save rather than spend. Huge increase in taxes (without government spending the tax collected), so that everyone has less to spend. you can imagine more. hope you get the gist
It’s a decline of real gross national income for two consecutive quarters. There were more complex indicators at one point but they fell out of favor for what’s seen as more simple.
First, the president cuts funding all over the place and causes a panic.
Second, people feel unsafe because they too could lose their jobs anytime, so they better start saving and won’t buy the new house, won’t go to restaurants several times a week, won’t even order in. Even at the grocery, they better not buy the expensive stuff.
So now grocery stores have products left overs, restaurants order less ingredients, so companies have to produce less, so they let go a couple of employees, restaurants let go a few more employees, start closing, grocery stores start letting go a few employees. So just like that, things start to cascade.
It’s stupid but if we have two straight quarters with negative growth, it’s considered as a recession. In reality, you won’t feel a thing with that unless the drop is like 5-10%. I would say if we have 20-30% drop in housing price all around the country, then we’re solidly in the recession.
However, with tariffs and inflation, it will hit the poor much sooner and harder. We will have tons of homeless people while the rich still fight over each other to buy their $million dollar house in cash.