Growth recession

Last updated

Growth Recession is a term in economics that refers to a situation where economic growth is slow, but not low enough to be a technical recession, yet unemployment still increases. [1]

Contents

Background

The term was created[ when? ] in 1972 [2] by Dr. Solomon Fabricant (New York University, National Bureau of Economic Research) [3] and is recognized and cited more recently by business economists. Note that the term also has slightly different secondary meanings including a more general one that growth is below potential. However, the more specific meaning indicates the growth is weak and insufficient to provide jobs for those entering the labor market (see the Hoisington and Hunt reference).[ citation needed ] There may also be a third meaning referring to growth in which more jobs are actually being destroyed than created. In all cases, the term indicates, Real GDP is expanding (slowly) but with job contraction, so the economy behaves or feels in many ways like a recession.[ citation needed ]

A Soft Landing tends to also be a Growth Recession, but this is not always the case. If economic growth in the economy is slowing to such a point that establishment payroll growth contracts, then the soft landing is so soft it has crossed over into a growth recession. The soft landings in the mid-1980s and the mid-1990s are examples.[ citation needed ]

Jobless Recovery, is a related term. All jobless recoveries are by definition also growth recessions, however not all growth recessions are jobless recoveries because a growth recession can occur at any point in an economic cycle, and a jobless recovery only refers to the period immediately after a recession ends.[ citation needed ]

Stagflation is not to be confused with a growth recession, despite featuring similar qualities. High inflation rates accompany high unemployment levels and a prolonged period of economic growth, otherwise known as stagnation. [4] A growth recession will last for more than a quarter of the year, while stagflation can last for years as seen during the 1970s Energy Crisis when the term was coined. [5]

Growth Recession vs. Recession

US employment level in 2020 Fredgraph Jan - Dec 2020.png
US employment level in 2020
Chairman Jerome Powell at a press conference in July 2022 NZ70257 (52245569898).jpg
Chairman Jerome Powell at a press conference in July 2022

The NASDAQ (National Association of Securities Dealers Automated Quotations) considers negative GDP (Gross Domestic Product) growth lasting six months or more to be a recession. [6] A growth recession will last for more than a quarter of the year, and despite the negative GDP growth and high unemployment levels, it does not last as long as an official recession and there is still economic growth. An example of this occurred between February 2020 and April 2020, [7] when employment levels dropped to a record high unemployment rate of 14.7 percent. According to the U.S. Bureau of Labor Statistics, this is the highest unemployment rate on record since January 1948. [8] However, despite GDP growth and employment levels dropping for only two months, this short period of time is referred to as the COVID-19 Recession.

In comparison to a longer running recession, a growth recession is the next best option as suggested by Federal Reserve Chair, Jerome Powell, at a Jackson Hole Conference on August 26, 2022, in Jackson Hole, Wyoming. [9] After the Federal Reserve was unable to maneuver the economy towards a soft landing, Chairman Powell gave a speech at the economic policy symposium to present the Fed's reassessment of the economy and their aggressive policy to tackle inflation. According to economists, the soft landing would have allowed the economy to avoid a recession and rein inflation back down to 2 percent without exacerbating unemployment levels, [10] but the rapid rise in price growth has left the Federal Reserve with no other option. The aggressive measure is needed to ensure price stability in the economy as the United States continues to recover from the two-month-long recession brought on by the 2019 Pandemic. According to Chairman Powell, uncontrolled high inflation will cause greater damage to the economy versus the “unfortunate costs” faced by businesses and most consumers, who face job loses and higher costs of affordability for basic goods. [11] However, hiking interest rates to cool market demand is one of the driving factors behind the Federal Open Market Committee's (FOMC) mission to reduce inflation and regain price stability in the market. [9] A slow growing economy within a growth recession may prevent far worse economic conditions such as stagflation, where it is more difficult to recover the economy and employment levels.

The pain caused by higher interest rates on companies and consumers is even more challenging as the labor market is struggling to recover from its pandemic levels despite a slow growing economy. [12] This was another concern address by Chairman Powell, who noted the discrepancy between jobs added and the available workforce in August. Businesses have attempted to raise wages to attract employees, but Chairman Powell fears this may exacerbate price instability if the disparity between jobs and workers continues.

Related Research Articles

<span class="mw-page-title-main">Macroeconomics</span> Study of an economy as a whole

Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as output/GDP and national income, unemployment, price indices and inflation, consumption, saving, investment, energy, international trade, and international finance.

In economics, a recession is a business cycle contraction that occurs when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending. This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock, the bursting of an economic bubble, or a large-scale anthropogenic or natural disaster.

<span class="mw-page-title-main">Reaganomics</span> Economic policies of Ronald Reagan

Reaganomics, or Reaganism, were the neoliberal economic policies promoted by U.S. President Ronald Reagan during the 1980s. These policies are characterized as supply-side economics, trickle-down economics, or "voodoo economics" by opponents, while Reagan and his advocates preferred to call it free-market economics.

In economics, stagflation or recession-inflation is a situation in which the inflation rate is high or increasing, the economic growth rate slows, and unemployment remains steadily high. It presents a dilemma for economic policy, since actions intended to lower inflation may exacerbate unemployment.

<span class="mw-page-title-main">Economy of the United States</span>

The United States is a highly developed/advanced mixed economy. It is the world's largest economy by nominal GDP; it is also the second largest by purchasing power parity (PPP), behind China. It has the world's seventh highest per capita GDP (nominal) and the eighth highest per capita GDP (PPP) as of 2022. The U.S. accounted for 25.4% of the global economy in 2022 in nominal terms, and about 15.6% in PPP terms. The U.S. dollar is the currency of record most used in international transactions and is the world's reserve currency, backed by a large U.S. treasuries market, its role as the reference standard for the petrodollar system, and its linked eurodollar. Several countries use it as their official currency and in others it is the de facto currency.

Full employment is a situation in which there is no cyclical or deficient-demand unemployment. Full employment does not entail the disappearance of all unemployment, as other kinds of unemployment, namely structural and frictional, may remain. For instance, workers who are "between jobs" for short periods of time as they search for better employment are not counted against full employment, as such unemployment is frictional rather than cyclical. An economy with full employment might also have unemployment or underemployment where part-time workers cannot find jobs appropriate to their skill level, as such unemployment is considered structural rather than cyclical. Full employment marks the point past which expansionary fiscal and/or monetary policy cannot reduce unemployment any further without causing inflation.

The economies of Canada and the United States are similar because both are developed countries. While both countries feature in the top ten economies in the world in 2022, the U.S. is the largest economy in the world, with US$24.8 trillion, with Canada ranking ninth at US$2.2 trillion.

The early 1990s recession describes the period of economic downturn affecting much of the Western world in the early 1990s. The impacts of the recession contributed in part to the 1992 U.S. presidential election victory of Bill Clinton over incumbent president George H. W. Bush. The recession also included the resignation of Canadian prime minister Brian Mulroney, the reduction of active companies by 15% and unemployment up to nearly 20% in Finland, civil disturbances in the United Kingdom and the growth of discount stores in the United States and beyond.

<span class="mw-page-title-main">Early 2000s recession</span> Recession that occurred in the early 2000s

The early 2000s recession was a decline in economic activity which mainly occurred in developed countries. The recession affected the European Union during 2000 and 2001 and the United States from March to November 2001. The UK, Canada and Australia avoided the recession, while Russia, a nation that did not experience prosperity during the 1990s, began to recover from it. Japan's 1990s recession continued.

<span class="mw-page-title-main">Early 1980s recession</span> Global economic recession

The early 1980s recession was a severe economic recession that affected much of the world between approximately the start of 1980 and 1982. It is widely considered to have been the most severe recession since World War II until the 2007–2008 financial crisis.

A soft landing in the business cycle is the process of an economy shifting from growth to slow-growth to potentially flat, as it approaches but avoids a recession. It is usually caused by government attempts to slow down inflation. The criteria for distinguishing between a hard and soft landing are numerous and subjective.

<span class="mw-page-title-main">Depression of 1920–1921</span> Sharp deflationary recession

The Depression of 1920–1921 was a sharp deflationary recession in the United States, United Kingdom and other countries, beginning 14 months after the end of World War I. It lasted from January 1920 to July 1921. The extent of the deflation was not only large, but large relative to the accompanying decline in real product.

The 1990s economic boom in the United States was an economic expansion that began after the end of the early 1990s recession in March 1991, and ended in March 2001 with the start of the early 2000s recession during the Dot-com bubble crash (2000–2002). It was the longest recorded economic expansion in the history of the United States until July 2019.

<span class="mw-page-title-main">1973–1975 recession</span> Period of economic stagnation in the Western world

The 1973–1975 recession or 1970s recession was a period of economic stagnation in much of the Western world during the 1970s, putting an end to the overall post–World War II economic expansion. It differed from many previous recessions by involving stagflation, in which high unemployment and high inflation existed simultaneously.

<span class="mw-page-title-main">Unemployment in the United States</span> Explanation of unemployment in the United States, presently and historically

Unemployment in the United States discusses the causes and measures of U.S. unemployment and strategies for reducing it. Job creation and unemployment are affected by factors such as economic conditions, global competition, education, automation, and demographics. These factors can affect the number of workers, the duration of unemployment, and wage levels.

<span class="mw-page-title-main">Early 1990s recession in the United States</span>

The United States entered a recession in 1990, which lasted 8 months through March 1991. Although the recession was mild relative to other post-war recessions, it was characterized by a sluggish employment recovery, most commonly referred to as a jobless recovery. Unemployment continued to rise through June 1992, even though a positive economic growth rate had returned the previous year.

<span class="mw-page-title-main">Early 1980s recession in the United States</span> Economic recession

The United States entered recession in January 1980 and returned to growth six months later in July 1980. Although recovery took hold, the unemployment rate remained unchanged through the start of a second recession in July 1981. The downturn ended 16 months later, in November 1982. The economy entered a strong recovery and experienced a lengthy expansion through 1990.

<span class="mw-page-title-main">Economic recovery</span> Phase of the business cycle following a recession

An economic recovery is the phase of the business cycle following a recession. The overall business outlook for an industry looks optimistic during the economic recovery phase.

Since World War II, the United States economy has performed better significantly on average under the administration of Democratic presidents than Republican presidents. The reasons for this are debated, and the observation applies to economic variables including job creation, GDP growth, stock market returns, personal income growth and corporate profits. The unemployment rate has risen on average under Republican presidents, while it has fallen on average under Democratic presidents. Budget deficits relative to the size of the economy were lower on average for Democratic presidents. Ten of the eleven U.S. recessions between 1953 and 2020 began under Republican presidents.

References

  1. ↑ What is a growth recession? by Phil Thornton, 26 April 2012
  2. ↑ Fabricant, Solomon (1972). "The "Recession" of 1969—1970" (PDF). National Bureau of Economic Research. Economic Research: Retrospect and Prospect, Volume 1, The Business Cycle Today: 89–136 – via NBER.
  3. ↑ , Van R. Hoisington, Lacy H. Hunt, Ph.D., Hoisington Quarterly Review and Outlook Third Quarter 2007, "Growth Recession" [ dead link ]
  4. ↑ NASDAQ. "Stagflation". NASDAQ.
  5. ↑ Nelson, Edward (May 24, 2022). "How Did It Happen?: The Great Inflation of the 1970s and Lessons for Today, Finance and Economics Discussion Series 2022-037" (PDF). Washington: Board of Governors of the Federal Reserve System. doi:10.17016/FEDS.2022.037.
  6. ↑ "Growth Recession". NASDAQ. 2022.
  7. ↑ U.S. Bureau of Labor Statistics (1948-01-01). "Employment Level". FRED, Federal Reserve Bank of St. Louis. Retrieved 2022-11-14.
  8. ↑ "Unemployment rate rises to record high 14.7 percent in April 2020 : The Economics Daily: U.S. Bureau of Labor Statistics". www.bls.gov. Retrieved 2022-11-14.
  9. 1 2 "Speech by Chair Powell on monetary policy and price stability". Board of Governors of the Federal Reserve System. Retrieved 2022-11-17.
  10. ↑ "Federal Reserve Chair Jerome Powell says inflation fight may cause a recession". PBS NewsHour. 2022-09-22. Retrieved 2022-11-17.
  11. ↑ "Another big Fed rate hike is here to battle inflation. Economy hangs in balance". NPR.org. Retrieved 2022-11-17.
  12. ↑ Horsley, Scott (2022-09-02). "The economy added 315,000 jobs, showcasing a labor market that is still strong". NPR. Retrieved 2022-11-17.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.