This article is good reading about What is Recession, recession indicators, 6 things to do in recession
Table of Contents
What is recession ?
Recession is a temporary or Cyclic decline in economy. During this period spending activity is reduced, trade or industrial activity is at a halt or it is very slow. This triggers dependent events like financial crisis, job loses and higher unemployment etc. A common definition practically used is “ A consecutive drop in GDP (Gross Domestic Product) for any country for two quarters”. If we talk about USA, it is Professed by a team of experts of experts at the NBER ( National Bureau of Economic Research).
What are the top 4 keys indicators to watch for Recession ?
1. Unemployment Rate
This is a lagging indicator, economic crisis leads to job loses hence Unemployment rate is high during recession. This indicator shows a nice indication during initial days of recession and once the recession starts recovering
2. Manufacturing Index
Manufacturing Index is also called as purchasing manager index. This best demonstrate the contraction and expansion in manufacturing. It is based on surveys conducted with supply chain managers across industries and it measures the trend direction in Manufacturing sector.
3. Gross domestic Product
GDP is a statistic that calculates the value of the goods and services produced by an economy in a particular period.
4. Real Income
This is actually called as Real wage, this is the purchasing power of an individual. It is the individual income earned after inflation adjustment.
Top 6 things to do during recession ?
1.Having an Emergency Fund
Having an emergency fund is very much mandatory in any kind of economy. Its becomes more important during recession which can be a plan for risk of job loss or business loss. A general thumb rule to know how much emergency fund is – keep aside three to six month’s worth of living expenses
2. Cash
Holding cash in bank is long term loss due to inflation. Other than rainy day fund which is also called as emergency fund, is the only cash to be kept in any dedicated account which can be used during emergency.
3. Never stop Investing
Always keep in mind the famous quote from Warren Buffet “Be fearful when others are greedy, and greedy when others are fearful.” Recession is the time to buy and not sell. This is the period when good company stocks are available in high discount. So be ready for it.
4. Reassess you family expense budget
Evaluating and tracking budget is a good habit which will help to grow Financially. It is good to keep your expenses low under your means. This will help to have some extra funds for investments or emergency fund.
5. A second source of Income
A worst situation in recession is to loose your job or have a loss in your business. Hence having multiple income will help to survive this difficult situation. A second income can be a passive income like having an YouTube channel, creating learning videos courses, affiliate marketing etc.
6. Don’t Panic
Panicking will create only loss and depression, staying clam and stick to plan for investing and taking care of your living expenses will help to overcome recession.
Summary
Below table summarize main reasons of recession and its impact. Always keep in mind Recession is cyclical, It is a history Market will always come up. Job will be created, there will be growth. Only patience, how good you plan and follow it, creating passive income will help you to overcome this difficult period.
| Main reason of Recession | Impacts of Recession |
| Inflation | Higher unemployment rate |
| Higher Interest rates | Less Spending power of customer |
| Reduced Income | Drop in stock Investment value |
| Less Customer Confidence | Depression |