What is a Recession, Really?

May 11, 2018 | BEGINNER, INVESTING 101

By now you’ve probably heard the term “recession” thrown around a lot.

While the overall U.S. economy has been relatively stable the last few years, and we’ve recently seen a very long-running bull-market, the media is abuzz with conversations on the current market correction and the possibility of a recession.

But you may be wondering, just what is a recession, really?

The term “recession” refers to a significant decline in economic activity lasting more than just a few months – typically two consecutive quarters or more.

A correction is the same thing, just lasting a shorter amount of time, and usually not quite as significant.

Recession can be brought on slowly because of a build-up of small events, or it can be triggered by one event – a crisis.

The last big recession was at the end of the last decade. The 2008/2009 financial crisis affected the global economy, not just the U.S. Since then, we’ve seen a relatively stable economy.

Recent political and economic tensions, however, have some experts concerned another recession may be on the horizon.

Others disagree, citing the low unemployment rates and rising home costs and interest rates as evidence against a recession.

The question really isn’t IF though, it’s WHEN.

Recessions are a natural part of a moving economy. And the effects of even a short recession can last long after the economy turns. The good news is that while periods of recession are inevitable so are periods of prosperity and growth.

Recessions also provide an opportunity for investors to buy stock at lower prices. If you think a stock will recover after the economy improves, recession is the best time to buy. The prices will be low and, if you’re right, you’ll be set to make impressive gains.