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RECESSION

In economics, the term recession generally describes the reduction of a country's gross domestic product (GDP) for at least two quarters. The usual dictionary definition is "a period of reduced economic activity", a business cycle contraction. The United States-based National Bureau of Economic Research (NBER) defines economic recession as: "a significant decline in [the] economic activity spread across the country, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales." The NBER's Business

Cycle Dating Committee is generally seen as the authority for dating US recessions. Academic economists, policy makers, and businesses all usually refer to recessions as determined by the NBER.

ATTRIBUTES OF RECESSIONS
In macroeconomics, a recession is a decline in a country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. Some economists prefer a more robust definition of a 1.5% rise in unemployment within 12 months. In a 1974 New York Times article, Julius Shiskin suggested several rules of thumb to identify a recession, which included two successive quarterly declines in gross domestic product (GDP). His other rules are usually ignored. An alternative, less accepted, definition of recession is a downward trend in the rate of actual GDP growth as promoted by the

business-cycle dating committee of the National Bureau of Economic Research That private organization defines a recession more ambiguously as "a significant decline in economic activity spread across the economy, lasting more than a few months." A recession has many attributes that can occur simultaneously and can include declines in coincident measures of activity such as employment, investment, and corporate profits. A severe (GDP down by 10%) or prolonged (three or four years) recession is referred to as an economic depression, although some argue that their causes and cures can be different.

PREDICTORS OF A RECESSION

There are no completely reliable predictors. These are regarded to be possible predictors.

In the U.S. a significant stock market drop has often preceded the beginning of a recession. However about half of the declines of 10% or more since 1946 have not been followed by recessions. In about 50% of the cases a significant stock market decline came only after the recessions had already begun.

Inverted yield curve, the model developed by economist Jonathan H. Wright, uses yields on 10-year and three-month Treasury securities as well as the Fed's overnight funds rate. Another model developed by Federal Reserve Bank of New York economists uses only the 10-year/three-month spread. It is, however, not a definite indicator; it is sometimes followed by a recession 6 to 18 months later.

The three-month change in the unemployment rate and initial jobless claims.

Index of Leading (Economic) Indicators (includes some of the above indicators).

RESPONDING TO A RECESSION
Strategies for moving an economy out of a recession vary depending on which economic school the policymakers follow. While Keynesian economists may advocate deficit spending by the government to spark economic growth, supply-side economists may suggest tax cuts to promote business capital investment. Laissez-faire economists may simply recommend that the government not interfere with natural market forces. Both government and business have responses to recessions. In the Philadelphia Business Journal, Strategic Business adviser Carter Schelling has discussed precautions businesses take to prepare for looming recession, likening it to fire drill. First, he suggests that business owners gauge customers' ability to resist recession and redesign customer offerings accordingly. He goes on to suggest

they use lean principles, replace unhappy workers with those more motivated, eager and highly competitive. Also over-communicate. "Companies," he says, "get better at what they do during bad times." He calls his program the "Recession Drill."

STOCK MARKET AND RECESSIONS

Some recessions have been anticipated by stock market declines. In Stocks for the Long Run, Siegel mentions that since 1948, ten recessions were preceded by a stock market decline, by a lead time of 0 to 13 months (average 5.7 months). It should be noted that ten stock market declines of greater than 10% in the DJIA were not followed by a recession. The real-estate market also usually weakens before a recession. However real-estate declines can last much longer than recessions. Since the business cycle is very hard to predict, Siegel argues that it is not possible to take advantage of economic cycles for timing investments. Even the National Bureau of Economic Research (NBER) takes a few months to determine if a peak or trough has occurred in the US. During an economic decline, high yield stocks such as FMCG, pharmaceuticals, and tobacco tend to hold up better. However when the economy starts to recover and the bottom of the market

has passed (sometimes identified on charts as a MACD), growth stocks tend to recover faster. There is significant disagreement about how health care and utilities tend to recover. Diversifying one's portfolio into international stocks may provide some safety; however, economies that are closely correlated with that of the U.S. may also be affected by a recession in the U.S. There is a view termed the halfway rule according to which

investors start discounting an economic recovery about halfway through a recession. In the 16 U.S. recessions since 1919, the average length has been 13 months, although the recent recessions have been shorter. Thus if the 2008 recession followed the average, the downturn in the stock market would have bottomed around November 2008.

RECESSION AND POLITICS

Generally an administration gets credit or blame for the state of economy during its time. This has caused disagreements about when a recession actually started. In an economic cycle, a downturn can be considered a consequence of an expansion reaching an unsustainable state, and is corrected by a brief decline. Thus it is not easy to isolate the causes of specific phases of the cycle. The 1981 recession is thought to have been caused by the tightmoney policy adopted by Paul Volcker, chairman of the Federal Reserve Board, before Ronald Reagan took office. Reagan supported that policy. Economist Walter Heller, chairman of the Council of Economic Advisers in the 1960s, said that "I call it a Reagan-Volcker-Carter recession. The resulting taming of inflation did, however, set the stage for a robust growth period during Reagan's administration. It is generally assumed that government activity has some influence over the presence or degree of a recession. Economists

usually teach that to some degree recession is unavoidable, and its causes are not well understood. Consequently, modern government administrations attempt to take steps, also not agreed upon, to soften a recession. They are often unsuccessful, at least at preventing a recession, and it is difficult to establish whether they actually made it less severe or longer lasting.

HISTORY OF RECESSIONS

Global recessions
There is no commonly accepted definition of a global recession, IMF regards periods when global growth is less than 3% to be global recessions. The IMF estimates that global recessions seem to occur over a cycle lasting between 8 and 10 years. During what the IMF terms the past three global recessions of the last three decades, global per capita output growth was zero or negative. Economists at the International Monetary Fund (IMF) state that a global recession would take a slowdown in global growth to three percent or less. By this measure, three periods since 1985 qualify: 1990-1993, 1998 and 2001-2002.

UNITED KINGDOM RECESSIONS


According to economists, since 1854, the U.S. has encountered 32 cycles of expansions and contractions, with an average of 17 months of contraction and 38 months of expansion. However,

since 1980 there have been only eight periods of negative economic growth over one fiscal quarter or more, and four periods considered recessions:

January-July 1980 and July 1981-November 1982: 2 years total

July 1990-March 1991: 8 months March 2001-November 2001: 8 months December 2007-current: over 13 months by the end of 2009

From 1991 to 2000, the U.S. experienced 37 quarters of economic expansion, the longest period of expansion on record. For the past three recessions, the NBER decision has approximately conformed with the definition involving two consecutive quarters of decline. However the 2001 recession did not involve two consecutive quarters of decline, it was preceded by two quarters of alternating decline and weak growth.

LIKELY

2008/2009

RECESSION

IN

SOME

COUNTRIES
Since 2007, there had been speculation of a possible recession starting in late 2007 or early 2008 in some countries. In January 2008, the IMF predicted that 2008 global growth would fall from 4.9 percent to 4.0 percent (as measured in terms of purchasing power parity), however 2 months later it was announced that this projection was not low enough. There was significant speculation about a possible U.S. recession in 2008. If such a recession happened, it was expected to have a global impact. The U.S. represents about 21 percent of the global economy, and impact of a U.S. recession could spread through the following:

Less spending by U.S. consumers and companies reduce demand for imports.

The crisis of the U.S. subprime-mortgage market has pushed up credit costs worldwide and forced European and Asian banks to write down billions of dollars in holdings.

Dropping U.S. stock prices drag down markets elsewhere.

United States
The United States housing market correction (a consequence of United States housing bubble) and subprime mortgage crisis has significantly contributed to a recession. The 2008/2009 recession is seeing private consumption fall for the first time in nearly 20 years. This indicates the depth and severity of the current recession. With consumer confidence so low, recovery will take a long time. Consumers in the U.S. have been hard hit by the current recession, with the value of their houses dropping and their pension savings decimated on the stock market. Not only have consumers watched their wealth being eroded they are now fearing for their jobs as unemployment rises.

U.S. employers shed 63,000 jobs in February 2008, the most in five years. Former Federal Reserve chairman Alan Greenspan said on April 6, 2008 that "There is more than a 50 percent chance the United States could go into recession.". On October 1, the Bureau of Economic Analysis reported that an additional 156,000 jobs had been lost in September. On April 29, 2008, nine US states were declared by Moody's to be in a recession. In November 2008 Employers eliminated 533,000 jobs, the largest single month loss in 34 years. For 2008, an estimated 2.6 million U.S. jobs were eliminated. Although the US Economy grew in the first quarter by 1%, by June 2008 some analysts stated that due to a protracted credit crisis and "rampant inflation in commodities such as oil, food and steel", the country was nonetheless in a recession. The third quarter of 2008 brought on a GDP retraction of 0.5% the biggest decline since 2001. The 6.4% decline in spending during Q3 on nondurable goods, like clothing and food, was the largest since 1950.

A Nov 17, 2008 report from the Federal Reserve Bank of Philadelphia based on the survey of 51 forecasters, suggested that the recession started in April 2008 and will last 14 months They project real GDP declining at an annual rate of 2.9% in the fourth quarter and 1.1% in the first quarter of 2009. These forecasts represent significant downward revisions from the forecasts of three months ago. A December 1, 2008, report from the National Bureau of Economic Research stated that the U.S. has been in a recession since December 2007 (when economic activity peaked), based on a number of measures including job losses, declines in personal income, and declines in real GDP.

OTHER COUNTRIES
A few other countries have seen the rate of growth of GDP decrease, generally attributed to reduced liquidity, sector price inflation in food and energy, and the U.S. slowdown. These

include the United Kingdom, Canada, Japan, Australia, China, India, New Zealand and the Eurozone. In some, the recession has already been confirmed by experts, while others are still waiting for the fourth quarter GDP growth data to show two consecutive quarters of negative growth. In case of India, it suffers global economic slowdown only and not recession. The effect is more pronounced in exports imports, steel and toy industr

IMPACT OF RECESSION IN AMERICAN ECONOMY ON INDIA The fear of a recession looms over the United States. And as the clich goes, whenever the US sneezes, the world

catches a cold. This is evident from the way the Indian markets crashed taking a cue from a probable recession in the US and a global economic slowdown. Weakening of the American economy is bad news, not just for India, but for the rest of the world too. A recession is a decline in a country's gross domestic product (GDP) growth for two or more consecutive quarters of a year. A recession is also preceded by several quarters of slowing down. WHAT CAUSES An economy which grows over a period of time tends to slow down the growth as a part of the normal economic cycle. An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years. A recession normally takes place when consumers lose confidence in the growth of the economy and spend less.

This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment. Investors spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment.

STOCK MARKETS & RECESSION


The economy and the stock market are closely related. The stock markets reflect the buoyancy of the economy. In the US, a recession is yet to be declared by the Bureau of Economic Analysis, but investors are a worried lot. The Indian stock markets also crashed due to a slowdown in the US economy. The Sensex crashed by nearly 13 per cent in just two trading sessions in January. The markets bounced back after the US Fed cut interest rates. However, stock prices are now at a low ebb in India with little cheer coming to investors.

CURRENT CRISIS IN THE US


The defaults on sub-prime mortgages (homeloan defaults) have led to a major crisis in the US. Sub-prime is a high risk debt offered to people with poor credit worthiness or unstable incomes. Major banks have landed in trouble after people could not pay back loans. The housing market soared on the back of easy availability of loans. The realty sector boomed but could not sustain the momentum for long, and it collapsed under the gargantuan weight of crippling loan defaults. Foreclosures spread like wildfire putting the US economy on shaky ground. This, coupled with rising oil prices at $100 a barrel, slowed down the growth of the economy.

No impact of recession as of now: bank official

VISAKHAPATNAM: The world-wide economic crisis has not yet hit the Indian banking industry till now, but it would feel the pinch if the crisis continues for long and becomes deep, observed Managing Director of State Bank of Hyderabad Renu Challu here on Friday. Right now there is an indirect impact as the overseas funding having been stopped for the corporate sector demand was now being directed to the Indian banks. Exporters are affected due to devaluation but there is no rise in NPAs of banks as yet and there is also no liquidity crunch, Ms. Renu explained and said We have to be careful now. On SBHs business activity, its MD said the focus was on mobilising deposits while offering the present rate of interest. The banks deposits stand at Rs.56,407.73 crores and advances at Rs. 39,880.98 crores during the first half-year of this fiscal. The operating profit was Rs.570.10 crores which

was 48 per cent higher than the last half and net profit was Rs.240.66 crores. One of leading banks SBH is one of the leading banks being bigger than six public sector banks and one of the largest associate banks of the SBI. The bank has 1010 branches, with 645 of them in AP and has a very good presence in Gulbarga, Aurangabad and other areas outside the State, which were once part of Hyderabad State, and branches in all metros along with Zonal offices. It is opening 100 branches in the coastal area by the end of 2009 by concentrating more on the rural and semi-urban areas to become APs local bank, Ms. Renu said. One branch would be opened in the Gangavaram port by November end. It is making efforts to increase its customer

base and fine tuning its products. SBH has added the portfolio of equipment finance to contractors. Ms. Renu also indicated that car lending rates may come down in a months time. SBH is advancing education loans to students of all IIITs and sanctioned loans to nearly 5,000 students during the last six months, which was double in number than last year. It was also the bank for the State Governments prestigious Arogya Sri and the educational scholarships programme. So far 2 lakh ATM cards have been distributed to the students. Deputy General Manager V. Narendra Babu was also present.

IMPACT CULTURE!

OF

RECESSION

ON

WORK

Saurabh Gupta | 26 Dec, 2008

The best thing about the global economic recession is that the world of work culture is changing.
With layoffs and salary cuts

compelling employees to be more enterprising, companies too are opting for other ways of getting work done like freelance jobs, part time jobs and pay-on-working-hours, etc. to tame recession.

Recently, while speaking with SME Times, management guru, Dr. Jagdish N. Sheth said, "The first major impact would be many employees, who are laid-off or are out of jobs will say 'let me do something instead of my salaried job. I want to be an entrepreneur now!' They might have enough savings."

"Entrepreneurship

doesn't

recognize

strengths,

race,

gender, education or any other pre-requisites. So it is possible for everybody...all you need is courage. It depends on your ability to take risks," he added.

Sheth said, "In America that is the biggest change we have seen now after working for a company for 15 years of his life. So what happens is that during this phase of recession one of them may think of doing something on his own."

It is the tendency of unemployed and under-employed individuals to become more entrepreneurial during

recessionary times that creates the steam that moves the economy out of recession.

Several ex-employees who are no longer in the payrolls of a single company too say that their hands are full with projects from different companies. "As long you have a good network, work will come to you," says a freelance editor in the Higher Education division of the publishing industry.

"After my company decided to let us go, I have work from

four different publishing houses, including my former company. So getting work is not a problem...time is. I now have a friend to help me out too," he said showing this correspondent a pile of proofs and editing materials.

Experts too opine that new businesses that begin during a recession create the jobs that bring the economy back on track again.

Take the last major recession for example. During 199192, self-employment was at an all-time high of 7.7%. During 1999-2000, it hit a 50-year low of 6.6%.

Moreover, during the last recession, it was laid-off whitecollar executives who mostly started their own businesses. In the early 90s, roughly 25% of downsized managers over 40 started their own companies.

This trend seems to be occurring again. According to the

outplacement firm Challenger, Gray & Christmas, in the first six months of 2002, 11.4% of jobless managers and executives started their own businesses.

Sheth said, "The recent bill on setting up a business just passed by the Indian government recently is going to be very valuable. And now a days everybody has technology, which help them to run a business even from their homes."

"So the world of work or work culture is changing for good. And mainly in MSMEs, freelance or part-time jobs will became popular in the coming days. This will help the employer to save money in terms of Provident Fund and other employee benefits," he added.

The modern concept of small office/ home office (SoHo), refers to the category of business which can be completed by 1 to 10 workers. SoHo can also stand for small or home office or single office/ home office. A larger business

enterprise, one notch up the size scale, is often categorized as a small business. When a company reaches 100 or more employees, it is often referred to as a Small and Mediumsized Enterprise (SME).

Before the 19th century, and the spread of the industrial revolution around the globe, nearly all offices were small offices and/ or home offices, with only a few exceptions. Most businesses were small, and so were the paperwork that went with them.

On the issue of the changing work culture, former diplomat, Shashi Tharoor told SME Times that things are tough now but they would not remain the same for ever.

Tharoor

said,

"There

is

increase

in

unemployment

everywhere, in west, in China and even sadly in India. But I think that each will change, each will transform itself. And my honest view is that we have to be little patience and we

need

to

take of

deep our

breath

and are

stay

calm.

The

fundamentals

economy

basically

strong."

"I think the Indian companies will be able to move forward and employ more people. Things are tough now but they wouldn't be tough for ever. And we just have to make sure that we stay calm and do the right things to enable opportunities for our people to work," he added.

Andrew J. DuBrin of Rochester Institute of Technology in his book 'Political Behavior in Organizations' has also brought to fore another aspect of the changing work culture vis-a-vis recession office politics.

Dwelling on the issue of office politics, the author says that during downsizing "conjuring up thoughts of kissing up to the boss, backstabbing rivals, and being insincere to obtain what you want" becomes a norm in an office.

startling

finding

from

research cited in the book is that managers spend about 20 percent of their time

dealing

with

company

politics, or about one out of five working days. To some, the percentage as can be an

'startling,' underestimate!

"...Managers

attempting

to

resolve political disputes may also divert too much positive

attention

from

matters such as dealing with customers and developing

strategy," DuBrin said.

The author urges bosses to get rid of yes-people and reward those who offer honest feedback. "Managers must let people know that they are looking for the unvarnished truth, rather than sycophantic new appreciation of the

emperor's

clothes."

When asked if this change in work culture is good for a growing economy like India, Sheth said, "Absolutely it is. In my own view the current crisis we are experiencing will make us all more wise. You learn from adversities like these if you have the aptitude to learn. And in this crisis we will learn how to survive and secondly we will learn to innovate.""And the future of employment will be very different or it could be even a permanent change. Last thing is, companies themselves will redesign their world of work," he added.

IMPACT OF RECESSION: US MEDIA IN DEEP CRISIS


NEW YORK: Faced with declining advertising revenue and mounting debt, the US media has plunged into a deep financial crisis. The publisher of the two most popular dailies, The Los Angeles Times and The Chicago Tribune, has filed for bankruptcy. The New York Times is seeking a $225 million loan against it's headquarter in mid-town Manhattan. The popular Miami Herald has been put on sale by its owner. And stocks of CBS, one of the popular new channels, have fallen below $5 in recent weeks. Most American media outlets are now struggling to survive. They have gone into massive cost cutting, resulting in hundreds of journalists and non-journalists in the mainstream media losing their jobs in recent months.

In the latest sign of crisis that has hit the once flourishing US media, The Tribune Company - which owns as many as 23 television stations and 12 newspapers including its flagship Los Angeles Times and The Chicago Tribune - announced on Monday that it has filed for bankruptcy. The company is said to have nearly $13 billion in debt compared to $7.6 billion in assets. "Unfortunately, factors beyond our control have created a perfect storm -- a precipitous decline in revenue and a tough economy coupled with a credit crisis that makes it extremely difficult to support our debt," Tribune CEO Sam Zell said in a statement on Monday. David Carr, popular media columnist for The New York Times, said: "Media companies have been hammered on the leading edge of the recession because they run on advertising, a discretionary expenditure that always is among the first things to go."

The New York Times Company, which runs one of the most popular American newspapers by the same name, said on Monday that it will borrow as much as $225 million against its skyscraper property in mid-town Manhattan, which happens to be its headquarter. This has become essential to prevent a possible cash flow jam. It is facing a debt repayment of $400 million. Notably, stocks of The New York Times have dropped 55 percent this year. So have stocks of several other media outlets. Besides CBS news channel, News Corp stocks have recently been trading below $6 and those of Time Warner have dropped under $8. Only a few days ago, The McClatchy Company, America's third largest newspaper chain running more than 30 newspapers, had put its popular The Miami Herald newspaper on sale. The Miami Herald with a circulation of 210,000 has won as many as 19 Pulitzer Prizes. Latest statistics released by Newspaper Association of America has disclosed that newspaper advertisement revenue in the

third quarter of this year dropped by $2 billion; a record 18.1 percent decline. The online ad revenue too declined for the second quarter in a row, it said. USA Today had announced a cut in jobs in its newsroom a fortnight ago. So did The Chicago Tribune last week. Gannett, the parent company of USA Today, has announced that it will cut 10 percent of its workforce at the more than 80 newspapers run by it. The 17-member Cox Newspapers chain has announced it is closing down its Washington bureau and would depend on news agencies now. Independently-run Milwaukee JournalSentinel has lost 20 percent of its staff in the past 18 months. A majority of the US media has already shut down its foreign bureaus or cut costs drastically.