The recession calls are loud, with financial firms going up and down Wall Street saying it will hit most major economies soon and that we should all brace ourselves. But, some of you have asked, what is a recession, really, and what is a bear market?
- A recession is a declining economic performance for several months, typically two consecutive quarters, which is measured by the country’s total GDP. This is the value of an economy’s total finished goods and services produced during a period of time.
- But the reason why everyone seems so confused about whether we’re currently in a recession or not is that it depends on who you ask, really.
- Most consumers think we’re in one at the moment. CEOs are preparing for one by issuing hiring freezes and cutting costs. But whether the US is officially in a recession depends on a small group of economists at a non-partisan think tank called the National Bureau of Economic Research (NBER).
- Now, the reason why everyone is leaping to a conclusion before the head honcho, NBER, has spoken is because it often doesn’t call a recession until two years after it’s started, said Laura Veldkamp, a finance professor at Columbia University and a research fellow for the NBER. This group of economists operates at a different pace from the rest of us because “their goal is not to be fast, but to be sure they are right,” Veldkamp explained.
- New economic data, which was published on Wednesday, showed US job openings had fallen less than expected, which undermined the calls that a recession is necessarily here or on its way.
- When people talk about a bear market right now, they’re probably referring to the decline in an overall market or index, like the Nasdaq. But they could also be referencing individual stocks or commodities. Regardless of what it is, a bear market is considered to be when declines of 20% or more have been seen for typically two months or longer. Bear markets can partner with a recession, but they’re not the same thing.
Key comments
“Investors continue the tug of war between, ‘Should I be more worried about high inflation or the quickly deteriorating growth outlook?’ Cross asset correlations over the last few weeks have suggested growth is the bigger worry for the market now,” said Thomas Kennedy, chief investment strategist for J.P. Morgan Global Wealth Management.
