How to measure recession?

By Wong Kon How

Typically, economists call a recession when GDP has declined for two consecutive quarters. Alternatively, we can make sense of it with DIY methods from the market.

“A committee at the National Bureau of Economic Research (NBER) is responsible for officially declaring when recessions start and end,” Baur says.

The NBER looks at several pieces of data such as total employment numbers, inflation-adjusted household income, wholesale and retail sales figures, and industrial production. When the NBER committee sees a sizable decline in all four pieces of data for several months or quarters, they’ll call it a recession.

We can also deploy indices to forecast recession. Throughout the last two decades, we could see only a few occasions of two quarters of decline. It subsequently led to around 2 years of bear. One was the tech stocks bubble in 2000 and the other was the sub-prime crisis in 2007.

This quarter will end in June. Technically, if it closed here or lower, the U.S. should be in recession. However, this time is different. When recession hits, meaning unemployment will increase, but if rising prices or inflation persist, it will lead to stagflation.

An anecdote, hopefully it will be helpful in how we differential market cycle and risks:

• Inflation is rising prices with high employment – Expanding economy

• Deflation is falling prices with unstable employment – Unstable economy

• Stagflation is rising prices with high unemployment - Mismanage or out-of-control economy

“For the man in the street, they don't need an economist to tell them that their standard of living has been significantly affected in the last few months," “What matters to them has gone up in price — their utility bills, their food, their petrol — and if their wages don't respond soon, their real standard of living will be at risk of declining this year.” said economist Walter Theseira, an associate professor at the Singapore University of Social Sciences (SUSS).


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