Planning Ahead - May 7, 2008

How do you define 'recession' in these times?

Bob Condron Bob CondronMay 7, 2008 

Bob Condron, CFP, MSFS, is a registered representative of Bridge Financial Partners. He can be reached by calling 548-8875 or sending an e-mail to bcondron@bridgefp.com.

It is impossible to watch the news and not hear someone mention the word "Recession."

So what exactly is a recession? With so much talk about recession, I thought some information would be helpful. We often hear the press define a recession as a decline in the Gross Domestic Product for two consecutive quarters. This is not the official definition of a recession as defined by the National Bureau of Economic Research.
The NBER is a private nonprofit organization that is the official resource for dating economic cycles. The NBER will review all relevant data and determine when a recession began and ended. I called NBER to get some answers on what defines a recession and to see if I could find out if we were in a recession or not. I spoke with Donna Zerwitz, the director of public information at NBER. To make sure I did not confuse Zerwitz, I clearly stated that I was doing a column for the Fort Mill Times and not the New York or London papers with similar names.
According to the NBER, a recession "is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." Zerwitz also said that the collection and analysis of information was not completed at this time.
Depending up your financial situation, here are three steps you may wish to consider when we face difficult financial periods:
First, increase the cash you have in your emergency fund. Extra cash may help you ride out an economically difficult time without having to increase your level of debt. Secondly, if you are saving for retirement, continue to contribute to retirement plan.Downturns in the market can represent a buying opportunity. Remember, the idea is to "buy low and sell high." In a long term investment plan it is important to maintain your investment strategy in bad times. If you are concerned about the quality of the individual investments, be sure to speak with your investment advisor or financial planner.
Lastly, don't be afraid to make long term purchases. If you have been considering buying a new home, housing prices and mortgage rates have been reduced. A new car is often less costly to maintain and more efficient with fuel than an older unreliable vehicle.
A recession is a lot like the summer thunderstorms (we use to get). At first, you could smell the rain, hear the dull thud of distant thunder and see the flash of light in the dark clouds. Soon it was upon you with pounding rain, the sharp crack of thunder and the bright flash of lightening. Slowly, it all began to fade away, like a train moving off in the distance. Afterwards the air smelled fresher and the world seemed a little cleaner.
Like the summer storms, a recession will pass and things will be a little clearer and the businesses that remain will be a little stronger for having survived.

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