What does being in a recession mean? Signs explored amid shrinking US economic growth

The American economy has raised concerns about going into a recession as GDP has dropped by 0.9 percent in the last three months, for the second quarter in a row. The first quarter showed a drop in GDP at an annual rate of 1.6 percent. Data released on July 28, 2022, indicates that business and consumer spending has declined in the last two years.

Addressing the issue with several White House members, President Joe Biden told reporters:

"That doesn't sound like a recession to me."

US Treasury Secretary Janet Yellen denied that the country was under recession even though GDP contracted for two consecutive quarters. However, she did not rule out the possibility altogether.

While addressing reporters on July 27, Chair of the Federal Reserve Jerome Powell also stated that the country is not in a recession at the moment.

"The reason is there are just too many areas of the economy that are performing too well."

So, let’s try to understand this economic phenomenon and what are the signs that a country is affected by it.

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All you need to know about 'recession' and its causes

The National Bureau of Economic Research website defines the term as:

"A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."

During this period, the economic output of the country decreases while the people and businesses suffer financially.

However, a recession is not characterized by contracting GDP across one or two quarters. Instead, it is associated with a consecutive and significant drop in economic activity across all spheres, including low production and sale of goods, high unemployment, and declining wages.

Some of the main causes of this phenomenon can be:

1) Economic shock: The recent coronavirus pandemic affected almost every sector of the economy out of the blue.

2) Excessive inflation or deflation: Prices going up or going down at an extreme rate can affect the economy since the purchasing power of a person becomes unstable.

3) Large amounts of debt: 2008's housing bubble proved that people often find it difficult to pay back loans when they are deep in debt. As a result, the economy becomes stunted.

4) Advanced technology: Fast-paced growth in technology and machinery can inadvertently become a cause of recession because it cuts down job opportunities for people.

Many people tend to lose their jobs when the economy is in a slump. Others may have their benefits and commissions cut or reduced. Companies may also choose to hold a person's bonus or increment. People usually have no power to bargain in this situation. Businesses take a hit because everyone tends to postpone their purchases.

During economic depression, many lose their employment-based health insurance if they are laid off. If this happens, a person can buy The Consolidated Omnibus Budget Reconciliation Act (COBRA) health insurance within 60 days of being stripped off the benefits or a new health plan via the Health Insurance Marketplace by the government.

Lenders also become more selective while giving out money as there is a higher risk of people defaulting.

However, since the US has created several jobs for its citizens, Treasury Secretary Yellen says that the country is not in a danger zone.

"When you're creating almost 400,000 jobs a month, that is not a recession."

He added:

"A recession is broad-based weakness in the economy. We're not seeing that now."

The performance of the economy this upcoming quarter will be crucial.