3013471.X.G_Recession.4:Special report 7/17/09 3:14 PM Page 1
ING Special Report
is accepted globally, many economists feel that definition “Recession 101” does not factor in other important economic change variables. A quick lesson in Economics and History For instance, current national unemployment rates or consumer confidence and spending levels are all a part of the economic system Are you feeling overwhelmed One of the most talked about and should be taken into account by all the information about the subjects in the news these days when defining a recession. current economic situation? is the recession we’re currently The agency that is officially in Do you know what it all means? experiencing. The reality is that charge of declaring a recession in And what do you do with all this is not the first time the U.S. the United States is known as the these numbers and figures? If economy has gone through a National Bureau of Economic this brings you back to your recession, and it probably won’t Research, or NBER. According to days of getting ready for finals, be the last. It is also true that this the NBER, a recession is a trying to understand all of the is one of the worst recessions that “significant decline in economic material thrown at you and the U.S. economy has seen in the activity lasting more than a few feeling overwhelmed, we may Post-World War II era. But the months.” The Business Cycle Dating be able to offer you some help. good news is that we have gone Committee of the NBER determined Here’s a quick guide to through this before, and like before, that a peak in economic activity understanding some of these we can come out. We have history occurred in the U.S. economy in concepts being discussed on the on our side! December 2007. This peak marked news that could help you feel a the end of the expansion that little less confused and a little First things first… began in November 2001 and the more hopeful. what is a recession? beginning of this recession. Experts around the world believe that a true economic recession can So now that you’ve brushed up only be confirmed if Gross Domestic on your economic concepts, what Product (GDP) growth is negative for can you learn from history? a period of two or more consecutive Source: “Determination of the December 2007 quarters. In other words, when Peak in Economic Activity” 2008 the value of goods and services http://wwwdev.nber.org/cycles/cyclesmain.html produced in the United States decreases six months in a row. While the “two quarter” definition
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U.S. Recessions over Time1
1907 – 1908 AUGUST 1929 – JUNE 1938 AUGUST 1957 – APRIL 1958 The “Panic of 1907” was the first (110 months) (8 months) major financial crisis to take place in The stock market crash that The late 50s recession, also called the U.S. in the 1900s, with the last occurred on Black Tuesday, the recession of 1957, resulted in recession having been back in the October 29, 1929 was one of the high unemployment rates and 1890s. The Panic of 1907 was major causes that led to the Great failing businesses. It was mostly actually a severe decrease in the Depression which, coupled with due to the tightened monetary money supply that manifested bank failures (throughout the policy of the Federal Reserve. itself as a recession. 1930s over 9,000 banks failed), APRIL 1960 – FEBRUARY 1961 led to one of the worst economic 1918 – 1921 (10 months) depressions in U.S history. The Post-World War I recession was The Early 1960s recession, also a recession characterized by severe FEBRUARY 1945 – OCTOBER 1945 called the Recession of 1960, hyperinflation in Europe, which (8 months) was characterized by, high spread to North America. Much of it The recession of 1945 was a brief, unemployment rates, high inflation, had to do with the lost production mild downturn which occurred as and a bad Gross National Product at the end of the war. This, coupled the U.S. demobilized from World rating. These all worked together with the influx of labor that was War II. Basically, the same thing to cause consumer confidence in caused by returning troops who happened in 1945 that had the system to deteriorate, and needed jobs, drove unemployment happened right after World War I. caused a downward spiral that to very high levels. During the war, a false high was negatively impacted many produced by the extreme demand businesses. What ended the OCTOBER 1926 – NOVEMBER 1927 that the war brought to the U.S. recession was the call President (13 months) Kennedy made on January 30, 1961 NOVEMBER 1948 – OCTOBER 1949 The recession of 1926 was one to increase government spending to (11 months) that few remember, as it came just improve the Gross National Product. before the Great Depression, and The late 40s recession might be This helped reduce unemployment, was often overshadowed by it. what some would consider a routine helped bring back confidence in the British coal miners went on strike cycle of the modern economic economy, and contributed to the that year and this action was model. During the late 40s end of the recession that very year. followed by a general strike, when recession, unemployment rates went three million workers went on from around 4% to about 8%. DECEMBER 1969 – NOVEMBER 1970 strike to support miners. (11 months) JULY 1953 – MAY 1954 The Late 60s recession, though (10 months) not nearly as problematic as its The Early 50s recession, also known predecessor in the early sixties, was as the Recession of 1953, was characterized once again by Depression mainly brought about because of unemployment and unhealthy Before the Great Depression of the kinds of financial challenges amounts of inflation. The modern the 1930s any downturn in seen after the Korean War economic cycle seems, usually, to economic activity was referred to (challenges that often accompany bring about smaller “aftershocks” as a depression. The term the end of any war). False highs, when a notably sized recession recession was developed in this this time in the form of a large comes to an end. period to differentiate periods like inflationary period, came down the 1930s from smaller economic quickly as the war came to a close. declines that occurred in 1910 and 1913. This leads to the simple definition of a depression as a recession that lasts longer and has a larger decline in business activity. 3013471.X.G_Recession.4:Special report 7/17/09 3:14 PM Page 3
NOVEMBER 1973 – MARCH 1975 MARCH 2001 – NOVEMBER 2001 DECEMBER 2007 – PRESENT DAY (16 months) (8 Months) The late 2000s recession, affecting The 1970s oil crisis really began The Early 2000s recession took the U.S. and most of the rest of the in 1973. The 1970s oil crisis was place in the U.S. for a number of world, was triggered by the brought on when oil prices were different reasons. One was the breakdown of the housing market. quadrupled by OPEC. This, along collapse of the dot.com bubble. The banking industry has struggled, with the increased government A false high, created in the initial, as many financial institutions face spending which came with the money-making wave of the Internet uncertainty about the values of their Vietnam War, led to severe that swept the world, arrived at a assets, particularly financial stagflation in the U.S. Stagflation realistic level. Also, the September instruments related to mortgages. is a condition of slow economic 11th attacks caused a huge stir The stock market has lost significant growth and relatively high among Americans. Although value from the all-time peak it unemployment – a time of Americans rallied and stayed positive reached in late 2007 and stagnation – accompanied by a through the difficult times, the unemployment has increased. rise in prices, or inflation. economy took a hit as people stopped spending money. Finally a JANUARY 1980 – NOVEMBER 1982 series of accounting scandals also (22 months) 1 Source: “History of U.S. Economic Recessions” caused a mild contraction on the 2009
Now that you know, what do you do? You’ve learned what a recession is, but what about the more important question: when will it end? No one can tell for sure. But given the historical patterns we can see that there is a light at the end of the tunnel, we just don’t know how long the tunnel is going to be. In the meantime, you don't have to just sit there and be overwhelmed by the ride on the economic rollercoaster. Here are some things you could do to help you get through this journey.
• Bolster that emergency of “frugality” has taken hold your rate because they don't cushion. Even in flush times, among families, with parents want to lose you,” says Justin financial advisers say consumers increasingly teaching their children McHenry, President of should have about six months’ to reconsider how much they IndexCreditCards.com. At farmers worth of expenses in their bank consume and whether they could markets and clothing boutiques, account to guard against job do with less. simply asking, “Can I get a loss or other emergencies. discount?” can lead to a lower • Negotiate almost everything. price. Paying with cash increases • Forget about keeping up From credit cards to clothes, the chances of making a deal with the Joneses. Since almost companies are open to making because it allows retailers to avoid everyone's budgets are strained deals as they struggle to keep credit card transaction fees. right now, cutting back is en customers. “If you're a good vogue. Futurist Faith Popcorn's customer, (credit card companies) Source: “Your 2009 Recession Survival Guide” research shows that the concept may be more apt to negotiate December 2, 2008, www.usnews.com
Recessions are painful, but as we’ve seen, they are just another phase of the economic cycle. Historically recessions have been short in duration when compared to economic expansions. Just keep in mind that as with any cyclical event you should just wait it out and be patient. But you don’t have to go at it alone; this is one ‘test’ you can get help with. Consider seeking advice from an investment professional. For additional information or to access other resources, such as ING’s retirement tools and calculators, visit us online at www.ingretirementplans.com.
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