A Recession is a period of negative economic growth that lasts more than a few months and reduces business and consumer spending. This can lead to layoffs and lower employment, and it may cause the prices of goods and services to decline.
There are many reasons for recessions. They can be caused by unexpected shocks that make the economy less stable, such as wars and pandemics, or by international financial crises. They can also be triggered by slowing demand, which happens when people are reluctant to spend or invest money because they’re worried about the future.
The National Bureau of Economic Research (NBER) is responsible for defining and announcing official recessions in the United States. Their definition of a recession is “a significant, widespread, and prolonged contraction in economic activity that occurs when the economy reaches its peak and begins to decline.”
When consumers’ purchasing power declines, they are less likely to spend on nonessential goods and services, which causes companies to cut back production and limit losses. This can start a cycle of declining spending that leads to layoffs and fewer sales, which can further weaken consumer demand.
Other factors that can trigger a Recession include rising interest rates, which can make it more expensive to borrow money for mortgages and other expenses. High interest rates can also eat away at the profits of companies that depend on lending to boost their incomes, as well as individuals with debts who may start defaulting on payments.
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