Economic Recession - What is a Recession?

An economic recession is where a country's gross domestic product or output is sustaining a negative growth for at least two consecutive quarters or six months. For the National Bureau of Economic Research (NBER), "recession is a significant decline in economic activity lasting more than a few months".

While a recession that is short lived is called economic correction. Meanwhile a sustained recession turns into a depression.

What causes recessions to happen?

There are complex reasons as well as simple reasons why economic recessions happen. John Maynard Keynes states that there are "animal spirits" as driving elements for a recession. "Animal spirits" could be confidence, uncertainty, and pessimism. These "animal spirits" prevent objectivity and quantitative analysis.

An example where these "animal spirits" take over, is when consumers lose interest on products and outputs. On the eve of an economic recession, there will be overproduction. Supply will exceed the demands of products and goods.

This will push companies to increase prices and consumers will lose confidence and will be uncertain in purchasing products. Until the event that consumers will stop buying. Another example for this element driving recession will be the psychological impact the events of the September 11 attacks on consumers and the people.

The effect of a recession on production

Some economists suggest that recession may not only be caused by events that have large or huge impact on the people. Events that hurt particular companies or industries can also cause recession. Major innovations or change in a price of a major component needed in the completion of the product can have dramatic effects on some firms. These may cause reduction of workers or production.

Overconsumption can also be a cause of recession. Spending more that what is necessary may lead to recession and poverty. And example will be the major fuss over the expenditure of the United States in the Iraq war. Economists are saying that the United States should be careful with their consumption in the future.

Government economic policies

Government economic policies can be used to avoid economic recession. But failure to provide good economic policies can lead to recession. There are some errors that can be made in economic policies. There are some economic policies that can lead to a boom and bust. This means that the economy is running in an unsustainable pace. Inflation is increasing.

Another policy error is that the policymakers themselves are not attentive enough to see the increasing inflation and onset of recession. Policymakers often times regard the onset of recession as just a slow economic growth and will correct themselves. But failure to address this may lead to more economic disasters.

The bursting of the housing market bubble of the United States and the unfolding credit crisis of other countries are some contributing factors for a global recession.

To summarize, economic recession can be brought about by external as well as internal economic shocks and widening imbalances in the economy. Numerous ways can cause recession. Steps can be undertaken to avoid altogether this kind of economic scenario to happen. But the most difficult part is to recover from the impacts of this economic turmoil.

Economic downturn and employment

The economic recession is causing many companies to review their human resources strategies (i.e.-staffing, pay, benefits) in response to the economic crisis. What are you doing?

Companies now believe the economic recession will result in their business having to review their HR programs indicating that they believe that this will be a long recession.

A recent survey by Watson Wyatt highlighted that more than 60 percent of companies indicated that they believe their business results will not hit bottom until the end of the year. In response companies are having to shed employees, freeze salary increases, stop all hiring and adjust all budgets for the upcoming year.

However, what I believe to be happening is companies have completed the necessary cuts already and are putting the process behind them and are now looking to make smaller cost cutting changes moving-forward.

The most important consideration for business owners is trying to retain their current staff. There is no benefit in reducing employee levels so low that in times of peak operations you don't have the resources and have to hire again.

Some of the key findings of the Watson Wyatt report are:

• 52 percent of companies have already made layoffs, up from 39 percent a few months ago. However those planning layoffs has fallen from 23 percent to 13 percent.
• 42 percent of companies have already put salary freezes in place - an increase of 13 percent.
• 69 percent of companies have revised their merit increase budget for the upcoming year.
• Since the economic crisis hit the majority of companies have changed their investment mix to move out of equities.

Companies expect the global economic recession to make the upcoming year a little tough and are adjusting longer-term program strategies to weather the storm.

What I am seeing is companies are taking a measured approach to cost cutting - increasing communication to employees, instituting travel restrictions and new employee hire freezes to name a few. However as the business outlook remains challenging many employers have buckled down and made more difficult decisions.

No business in today's economic crisis is immune to the effects of having to make large cuts to their internal resources. Now that the heavy cost-cutting is complete companies are moving to less drastic cost-cutting efforts such as; reducing the total number of working hours during the week, forcing employees take holidays.

If you haven't done so already then review your human resources program and look at my Cash Flow tips to help you get through the current economic downturn. Just remember though it wont last forever.

The best recession proof jobs

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