U.S. stocks careened, yet again, after President Donald Trump threatened to crank his tariffs higher on Monday.
While the word "recession" has been thrown around lately, is one really looming? What exactly does a recession mean and what does it mean...for you?
Here's what you need to know:
What exactly is a recession?
A recession as a significant decline in economic activity spread across the economy, lasting more than a few months, according to the International Monetary Fund.
Most commentators and analysts use, as a practical definition of recession, two consecutive quarters of decline in a country’s real gross domestic product (GDP)—the value of all goods and services it produces. While a recession, according to this definition, can last longer than six months, recovery can even take more time, up to a few years, according to the Tax Foundation.
A sustained reduction in gross national product, high unemployment, or a decline in stock prices can all signal a possible future recession.
Recessions have occurred several times in the past four decades—the mid-1970s, early 1980s, early 1990s, and early 2000s. Since the United States is the world’s largest economy and has strong trade and financial links with many other economies worldwide, most global synchronized recessions occur at the same time as a U.S. recession.
What does a recession look like and mean for you?
The effects of a recession cause negative chain reactions, Fidelity.com explained. For example, when a recession is on the horizon, people rein in their spending as a means of feeling more financially secure, but it in turn negatively impacts the businesses they tend to support. This causes layoffs, which obviously decreases the income that others have to spend. Because of lower spending on businesses, a company's performance in the stock market could be negatively impacted. A plunging stock market could cause more people to be even more conservative with their spending -- continuing the cycle.
Recessions may correct themselves over time or be helped along by governmental intervention, according to Fidelity.
Are we in a recession?
No, we are currently not in a recession. But the state of the economy lately has many keeping a close eye on the subject, especially given president Donald Trump's tariff war.
Who determines if the U.S. is in a recession?
A recession in the United States is official when the National Bureau of Economic Research (NBER) declares the start—and eventually, end—of one.
Goldman Sachs says tariff announcement may have caused irreversible damage
The financial firm Goldman Sachs said a recession has become more likely even if Trump retreats from his trade policies.
Goldman Sachs also reduced its expectations for economic growth “following a sharp tightening in financial conditions, foreign consumer boycotts, and a continued spike in policy uncertainty that is likely to depress capital spending by more than we had previously assumed.”
But even meeting those expectations “would now require a large reduction in the tariffs scheduled to take effect on April 9.”
What is a bear market?
All the tumult circling the economy has dragged the S&P 500 close to 20% below its record, which it set less than two months ago. If it finishes the day below that mark, it would be a big enough drop that Wall Street has a name for it. A “bear market” signifies a downturn that’s moved beyond a run-of-the-mill 10% drop, which happens every year or so, and has graduated into something more vicious.
According to the U.S. Securities and Exchange Commission, a bear market is a period of time when stock prices have fallen at least 20% from recent market highs and the market outlook is pessimistic. Generally, that decline is over at least a two-month period.
The closing price of the S&P 500, which is an index that tracks the prices of 500 large publicly traded US companies, is used to gauge if the US stock market is in bear-market territory, according to the multinational investment services firm Fidelity.
Does a bear market mean a recession is in our future?
Does a bear market mean a recession is in our future? Not really, but maybe. Although people may believe that a bear market means a recession is in the future, the two don't necessarily go hand-in-hand. According to Fidelity, a quarter of bear markets haven't ended in a recession.
A recession is typically defined by two consecutive quarters of decline in economic activity -- specifically a decline in a country's inflation-adjusted gross domestic product (GDP) -- the value of all goods and services a country produces, according to the International Monetary Fund. It is important to note that very short periods of decline are not considered recessions.
For more information on possible shift to a bear market, click here.
