(Prosperity)
Define: Recession
While The Federal Reserve Chairman Ben Bernanke calls “recession” a technical term, it’s not as complicated as say, Quantum Electro-Dynamics, nor as well defined. It’s more like applying Newton’s Law of Motion – for every action there is an equal and opposite reaction (what goes up comes back down) - to the economy. Conversely what goes down will eventually also go up.
At its simplest, a recession is a downturn in the economy - the whole economy, not just a bad day on Wall Street or one sector dropping due to lower than expected earnings. The R word denotes a significant decline in economic activity, usually lasting 6-18 months, affecting industrial production, employment, income adjusted for inflation and wholesale-retail trade.
The official arbiter of recessions is the National Bureau of Economic Research. One rule of thumb they use to judge whether or not there is a recession is whether there have been two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP). That’s right – no one says it’s a recession until we’re all smack dab in the middle of one.
But several other theories have proven to be as insightful in judging whether or not we are experiencing economic contraction. Leonard Lauder, chairman of Estee Lauder, - the company that owns some of our favorite brands like Bobbi Brown and Joe Malone - developed the Leading Lipstick Indicator. This theory maintains that in times of economic downturn, people turn to less expensive self indulgences, like lipstick, instead of the latest Lanvin bag. This theory isn’t too far off. Analysis shows that when the economy contracted in late 2001, retail sales of lipsticks doubled.
The Hemline Theory maintains that as the economy slows and people have more economic concerns, hemlines drop and become more conservative. Given the recent shows in Paris and Bryant Park, and their inconclusive, varying hemlines, maybe we’re in the middle of a soft recession. (On an aside, we’d like to note that it’s not a fluke that these theories connect women and the economy – women control the majority of consumer spending in the United States.) While sounding like an oxymoron along the lines of military intelligence, a soft recession is when the economy is growing at such a slow rate more jobs are being lost than created - the overall feeling is one of recession even though the gross domestic product is inching upward.
Ever been in the situation when once is just not enough? Yep, even recessions like to double dip. A double dip recession is a pattern of recession, short term growth and then recession again. A short pattern of growth and recovery from one downturn is followed by another downturn. This is usually caused by lack of economic activity and recovery, not by a demand to pay for the supply due to layoffs and spending cutbacks.
A recession is part of the economic cycle, though not always the most pleasant experience. The good news is that during a recession interest rates usually drop, so if you're looking to borrow money, now is a good time. Otherwise, take a deep breath, stock up on your favorite brand of lipstick, and remember that the economy, like the sun, also rises.