The 5 Stages of a Recession: What to Expect and How to Prepare Your Business

As we make our way towards the new year, the threat of a recession looms increasingly closer. If we truly are heading into a recession, what does that mean for the economy?

And how can we prepare to weather the coming storm?

What is a Recession?

According to the National Bureau of Economic Research (NBER), a recession is “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” 

These times of economic downturn are also often characterized by the following trends: 

1. An increase in the national unemployment rate

2. Significant reductions in industrial production/manufacturing leading to supply chain issues for both businesses and consumers

3. A decrease in retail business sales, particularly non-essential goods and services

4. A decrease in international exports

5. Reduced wages across the board and shorter shifts for hourly employees

While recessions only last about ten months on average, the economy often does not fully recover from their effects for a matter of years. Subsequently, unemployment also remains high throughout the first few years of an economic recovery, making it seem like the recession itself lasts significantly longer than its actual duration.

What is a recession?
source: unsplash

Is a Recession Inevitable in 2023?

Whether a recession is inevitable in 2023 comes down to how exactly you define the term “recession.” While the above definition is widely accepted, economists continue to debate about what truly qualifies as a recession. Some definitions include a list of clearly defined qualifiers, such as having a negative gross domestic product (GDP) for at least two quarters. By that definition, we would have entered into a recession in the summer of 2022, but if we go by the NBER definition instead, the United States would not qualify us for a true recession for a few more months. 

Regardless of the technicalities of the definition, the following ongoing trends are indicators that the economy is declining: 

- A decrease in GDP across the first half of 2022

- Shockingly high inflation with a Consumer Price Index (CPI) increase of 7.7%

- Dips in the stock market, notably the S&P 500 whose performance YTD is -17.09% 

- The US Treasury Yield Curve is inverted indicating that short-term interest rates yield more than long-term rates

- An increase in delinquencies in the Consumer Finance Industry

Stages of a Recession 

As we may be at the precipice of a recession, it is important to look ahead at what we can expect to see in the coming years both in general and as it pertains to financial services and the Consumer Finance Industry. 

Stages of Recession
1. Recession

This is the start of the recession as a whole. It can present with a variety of “symptoms” including:
- Economic Slowdown
- Stock Market Decline
- Rising Interest Rates
- Rising Unemployment
- Inflation

2. Trough 

This is the lowest point of a recession. The catch is, you never know you were in the trough until after the recovery stage has already begun. During this stage, there is typically a significant increase in unemployment. Furthermore, this is the time in which we will see a notable surge in delinquencies within the Consumer Finance sector. 

3. Recovery

As its name suggests, this is the period of the recession where the economy begins to recover. Unlike the following stage, expansion, this change is very gradual, with both businesses and consumers slowly altering their spending accordingly.

4. Expansion

This is the fourth stage of a recession and is marked by a change in the speed of recovery from timid growth to healthy constant expansion. 

5. Peak

This is the final stage of a recession in which the economy has returned to how it was before the initial economic decline. This stage could also be considered the first part of a new recession, considering the cycle of recessions and expansions continues time and time again.

How to Prepare for a Recession

Navigating a recession can be difficult, which is why preparation is essential to come out on top. We gathered a panel of Consumer Finance Industry experts who have been successful during past recessions to share their strategies for reducing costs and optimizing contact center operations.

Join our free webinar on Monday, December 5 to learn what you can start doing today to best prepare for the next recession.

Save your spot now – https://page.prodigaltech.com/webinar-prepare-for-recession

How to prepare for a recession - Webinar

Sources and Citations –
What happens during a recession - Forbes

Are we in a recession - Forbes

What to expect in a typical recession - CNBC

What happens during a recession - Small Biz Trends

NEBR

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Brian Reed

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Katalina Dawson

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