Financial Dictionary -> General Finance -> Recession

In terms of the economic cycle a recession is when the economy has peaked and is decreasing in to hard times. It does not necessarily mean it is in a serious slump or crisis, but that it is doing worse than it once was.

During times of recession people are spending less money because the economy has shifted in such a way that the public aren't earning as much money, there is mass debt, or prices are too high for the amount of disposable income. These factors can all be combined. In business terms stores will see less demand for their products, meaning fewer sales and fewer profits. Gradually something will have to give and businesses may start promotions, slashing prices and everything they can to get spending going again. In general recession starts with these falling sales, but if the problem continues output will be cut and employees will be laid off and other cost cutting measures will be put in to place.

Common occurrences during a recession include:

- Businesses complaining of falling demand.
- Cuts in output.
- Rising unemployment.
- Less job opportunities.
- Gloomy expectations.
- Big businesses are working well below capacity.
- Less investment; may also be coupled by a crash in the stock market.
- Lots of small businesses are making losses.
- Businesses, banks etc going under.

Although it may sound strange, for some, recession can help them be better off in the long run. This is particularly true for savers. There is only one way to go after a recession and that's back up. If you have a lot of money to invest you can pick up the scraps and be at the head of the pack when things pick up again. Equally businesses that survive a recession may now have more potential in the market as the competition may have folded.