The U.S. economy is on the verge of dealing with its tenth recession since World War II. The economic data coming in are some of the first post-September 11 readings, and they reflect the initial shock on consumer and business activity. The numbers prove that households and companies did exactly as expected when a crisis hits: They froze (Madigan 48). However, consumers fail to realize that our economy is subject to a periodic, but irregular up and down phenomena known as the business cycle.
Despite alarming data, this recession could be mild according to precedents set in the past.A basic definition of a recession is a decrease in Real GDP that lasts for at least two quarters or six months. Over its 146-year history, the United States has endured recession for approximately one third of the time. For that reason, economic analysts are far too familiar with the conditions that initiate a recession.There are many signs that point toward a future recession. Through past experiences, economists have learned to identify and react to the potential slowdowns in the economy.
In this case, a weak job market, a decrease in inventories and capital spending, as well as a slowdown in economic growth, all fueled the latest recession.The state of the labor market is an excellent indicator for a potential recession. Naturally, at the hands of the ever-changing technology, new jobs are created and old ones are destroyed. The United States has been enjoying an expansionary period since the end of the 1990-1991 recession (Bade 138). Over the past decade, the rapid rate of job creation in the new economy significantly lowered the unemployment rate.
However, the slowdown in the economy had forced companies to reevaluate their hiring plans. Businesses have been realigning their inventories and capital spending all year to match up with diminished prospects for demand (Madigan 48). Therefore, the labor market was better prepared to take on a recession that came after the longest period of economic growth in the history of the United States.
Excess inventory, the stock that companies have not sold, is one of the factors that led to the current economic downfall. Over the past year, due to a decrease in consumer demand and consumer spending, excess inventories have forced companies to ease up on production and to cut down the workforce. A significant change in either the workforce or inventories can be an indicator for budding recession.Economic Growth is a sustained expansion of production possibilities measured as an increase in real GDP over a certain period (Bade 222). Rapid Economic Growth for a number of years can transform a poor nation into a wealthy one. Just as, an absence of economic growth for many years can transform a wealthy nation into a poor one. Due to the discovery of new technologies, many people doubted the fact that at some point and time the economic growth would slow down.
However, with a limited amount of resources, the economic growth of a nation is bound to come to a halt at one time or another. The U.S.
has been subject to continuous economic growth for the past decade. However, with a limited amount of the factors of production and technology, economic growth in the United States is finally showing signs of slowing down. Changes in the economic growth patterns of nations are a great way of detecting potential recessions.Amid the talk of global recession, the United States is doing well to keep from upending the fragile economy. The Federal Reserve Board has taken steps to cut the interest rates, as well as offer tax rebates to people who have suffered from the downturn in the economy.
By doing so, the FED homes to get consumer spending back on track. For now, the recession looks anything but mild, and forth-quarter Real GDP is set to fall at a faster rate than it did in the third (Madigan 48). Nonetheless, the drop in the Real GDP represents the initial shock sent throughout the world in mid-September. Even though the airline industry has incurred losses that ere unimaginable, past experiences with recessions should help ease our fears. Sure, the United States hasnt seen anything