The harm of economic recessions

A recession is a significant decline in economic activity, lasting more than a few months. Many believe that when the real GDP is negative for two consecutive quarters or more, then the economy experiences a recession. However, there could be other indicators of the economic decline that one could analyze beforehand to, in some cases, prevent damage. When these indicators decline, GDP, consequently, becomes negative. Below is the list of those factors.

Real Income

During recessions, the real income is declined, which leads to a drop in consumers demand and purchases.

Source: U.S. Bureau of Economic Analysis (BEA)

During the Great Recession of 2007-2009, the real income of Americans declined. That was one of the indicators of the encroaching economic crisis.

Employment

Going hand in hand with the real income change, the decreasing level of employment can be a menace for the economy, leading to the recession. (Look at the sudden drops in employment during the US recessions.)

Manufacturing

Same as with other estimates, when the capacity utilization is low, it could signal the start of the recession. The manufacturing sector is measured by the Industrial Production Report. (Look at the decline of the percent of capacity in 2009 - the year of the Great Recession.)

Source: BOARD OF GOVERNORS of the FEDERAL RESERVE SYSTEM

Monthly GDP Estimates

As was already mentioned, the GDP declines once the recession occurs, indicating the start of it.

Now that the recession indicators have been described, the question remains. Why are the declines in economic activity considered harmful? Even though they usually do not last for a long time, recessions have long-lasting effects on economies. For instance, by creating a wide-spread unemployment, the economic declines reinforce the consumer purchases drops, leading some businesses to bankruptcy. These events combined will then have a huge impact on the global economy.