Guide – What is a recession?

What is a recession?

Understanding the market is important. The recession is a part of this. Because of this I’ve made a guide explaining this below.

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What’s the definition of a recession?

There are many ways to define it, but most of the time it looks like this:

“A recession slows the economy through the business cycle.”

There are many other definitions that vary from country to country. So what happens in a recession is more important than what it is.

What is happening during a recession?

It can have different implications for the economy, depending on the cause. Usually one or a combination of these factors:

● Rising unemployment rate.
● Increased bankruptcy.
● Lower interest rates.
● Reduction of personal consumption.
● Falling asset prices such as real estate and stocks.

Now, these factors are causing GDP to shrink quarterly, causing a so-called “recession.”

These are charts of all these factors in the current situation.

1. Unemployment rate

Current

Forecasted

2. Reported Bankruptcies

Current

Forecasted

3. Funding Rates

Current

Forecasted

4. Consumer Spending

The Yield Curve indicator

The yield curve is a complex issue, but it is one of the best predictors of a recession. I will try to disassemble it as easily as possible. The yield curve is plotted on the XY axes so that the Y-axis is the percentage of the yield on the security and the X-axis is the borrowing period of the security.

So how do you predict a recession?

The yield curve reflects the US Treasury yield curve. Ideally, long-maturity bonds now yield higher yields than short-term bonds. In this case, there is a normal yield curve.
This is the best scenario. We sometimes see long-term bond yields and short-term bond yields converge. This will flatten the curve. This suggests that a recession may be imminent. If short-term> long-term bond yields, you will see a reverse yield curve, which indicates a recession.

How accurate is it?

It has predicted 7/10 recessions in history.

Closing

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