posted on Jan, 24 2008 @ 10:37 PM
There is always much disagreement on defines a recession, but less on what a depression is. A depression rare and is usually spawned by some external
stimulus - like the great depression. A recession is part of a normal economic cycle which occurs at frequent intervals - depending on the literature,
anywhere from 5 to 8 years between small recessions is normal. They last for about 10 months on average.
Determining a recession cannot be done by looking at the stock market. The stock market can go down and up during a recession - the stock market's
direction is fueled in part based on emotion rather than economic influences. The stock markets movements beyond the emotional based selling/buying is
reactive, and moves based on _historical data_ which may or may not be reflective of a trend or the current economy. But of course, as you notice in
even this thread, people try to do it anyways. Its completely inaccurate, and the media knows this - but I think people get the perception that you
can somehow judge the overall well-being of the economy through the DOW average due to media hype. It just isn't that simple.
Statistically significant and successive decreases in the gross domestic product - or the actual (market) value of everything produced in the country
- is usually the widely accepted measure of a recession, as you have already quoted. The good news is the GDP is not fueled by emotion like the stock
market is, but it is still based on historical data. An examination of GDP must be concurrent, as you cite, with unemployment claims and consumer
spending. However, we also know that unemployment and consumer spending acts in yearly cycles, and the beginning of the year is usually marked by high
unemployment (Christmas layoffs) and slow-downs in consumer spending. These numbers need to be examined in a seasonally adjusted way to be accurate.
Everyone will know it when we enter into a depression. A depression is so extreme that you'll see riots, massive sale offs that make the current
volatility look like child's play, and extreme inflation or deflation (depending on the external stimulus). I have to chuckle at some of the people
on the board calling for a depression, as I have seen NO economist - even the most "negative" one - predict a depression. The most I've seen called
for is a severe recession on the "negative" side, and a mild recession on the "positive" side.
[edit on 24-1-2008 by LightinDarkness]