What Happens During a Recession? Your Complete Guide

In their hit song “I Want It That Way,” the Backstreet Boys talked about how they want things to be perfect. Unfortunately, in life, and in business, there is no such thing as perfection. While it is impossible to predict everything that will happen during a recession, if you are prepared, you can minimize its negative effects on your results. This guide will teach you what to expect and how to protect your business as the economy collapses. Let’s get started!

What would happen if we went into recession?

The first thing to know about a recession is that it is not caused by an event. It is the result of the confluence of many different factors, such as high unemployment, low consumer confidence, and declining spending. When these things happen, they put pressure on companies of all sizes.

Stages of a recession

The economy is going through cycles, and a recession is only part of that. Being aware of how these cycles work can help you withstand the storm and get to the other side stronger than before. There are five stages of a recession, which we will discuss below.


This is the first stage, and is characterized by a decline in activity throughout the economy. This can manifest itself in different ways, such as lower production levels, fewer jobs, and less consumer and business spending.


The second stage of a recession is the trough. That’s when the economy reaches its lowest point and starts spinning. This is often marked by an increase in unemployment as people who have been laid off start looking for new jobs.


The third stage is the recovery when the economy grows again. It is usually a slow process, with companies and consumers gradually increasing their spending.


The fourth stage is expansion when the economy grows at a healthy pace. That’s when companies are thriving, new jobs are being created and people have confidence in the future.


The fifth and final stage is the peak when the economy is at its peak. It is often followed by a recession as the economy begins to slow down. And this cycle repeats itself, over and over again.

What happens in a recession?

The economic cycle is a natural phenomenon and there is nothing we can do to stop it. However, there are things we can do to prepare for a recession, which is when there is negative GDP (gross domestic product) growth for at least two consecutive quarters.

The National Bureau of Economic Research (NBER) says a recession is “a significant decline in economic activity spread across the economy, lasting more than a few months, usually visible in real GDP, real income, employment , industrial production and wholesale and retail sales. ” Here are six main things that happen during a recession:

Economic slowdown

The first thing that happens during a recession is that the economy slows down. This means that companies are producing less and that consumer spending has gone down. This can lead to layoffs as companies try to reduce costs. During this time, there is a significant decline in demand for goods and services.

Stock market crash

The second thing that happens is a stock market crash. That’s when the value of stocks goes down and people lose money. This can cause a lot of anxiety as people worry about their investments. However, this can be a good time to invest in the stock market, as you can buy stocks at a discount.

Economic development

A growing economy is the third thing that happens. That’s when the economy grows again, after a period of decline. It is often a slow process as businesses and consumers gradually increase their spending.

Rising interest rates

The fourth thing that happens is that the Federal Reserve raises interest rates to try to curb the economy. Rising interest rates can make it difficult for companies to borrow money and can also lead to inflation.

Rising unemployment

The fifth thing that happens is that unemployment is rising. That’s when people lose their jobs as companies try to cut costs. This can be a very difficult time for families as they try to get to the end of the month.


The sixth and final thing that happens is inflation. It’s here when prices go up and people’s incomes don’t keep pace. This can be a problem for companies as they try to maintain their profit margins.

What has happened during past recessions?

There have been 13 economic recessions since the Great Depression. They have usually been caused by things like wars, oil shocks or financial crises. Recessions can be difficult times for both businesses and consumers. But they are also a natural part of economic cycles and eventually come to an end. Let’s take a look at two recent recessions in the history of our country:

The Great Recession 2007

The Great Recession experienced a significant decline in activity throughout the economy that occurred between 2007 and 2009. According to economic research, the recession was caused by a combination of factors, such as the outbreak of real estate bubble, easy credit conditions and high oil prices. . This was one of the worst recessions since the Great Depression. Many people lost their jobs and homes, and the stock market experienced a major drop.

Recession of World War II

World War II caused a sharp decline in economic activity. This was due in part to the fact that many countries focused on funding the war effort, and also on the disruption caused by the conflict. Once the war ended, the global economy experienced a period of rapid growth, known as the postwar boom.

Make sure your small business is ready

No one likes to think about the possibility of a recession, but as a small business owner, it’s important to be prepared. The first step is to closely examine your financial situation. Do you have enough cash on hand to withstand a few months of slow sales?

It is also important to understand the business cycle and how it can affect your industry. While there is no guarantee that your business will survive the next recession, taking the right precautions can give you more chances to withstand the storm.


Image: Envato Elements

Source link

Leave a Comment