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Does a recession matter?

25 July, 2022

Recessions are defined as two consecutive quarters of negative growth.

This rather untidy description harks back to President Nixon’s time in office in the US. It’s not as if there weren’t recessions before then, this just happens to be when the modern definition locked in.

There are so many practical problems with this, especially in context of an individual planning their finances, or a business trying to survive and grow. In both cases, one might imagine that official definitions of a recession are largely irrelevant.

The simple point must be that we all operate within a complex global economic environment where ebbs and flows, good times and bad are in a constant state of flux. Some businesses thrive in recessionary periods, some businesses go bust in the good times.

Prior to the covid economic shock, the UK had by pretty much avoided a technical recession for around ten years. However, it was hardly a golden period for investors in shares or property during this decade. If you look at decade by decade asset price rises, the 2010-2020 was pretty average.

Sometimes stock markets go positively wild during a period which has recessions within it or bookending it. You can see therefore that things are just far more complex, than worrying about whether we are in or heading for a technical recession, you must consider the bigger picture.

Then, there is another factor. What can you do about it? Very little, is the simple answer.
You/your business are not going to influence whether we enter a recession. You are just going to have to navigate through it (whatever it means). But then you must navigate through any period, regardless – so it all seems superfluous.
The final point is that we are talking thin margins here, anyway.

The difference between a technical recession and a non-technical recession may be down to statistical anomalies or measurement inaccuracies. Which may or may not be adjusted at a later point, making the whole thing subject to hype.

You – or your business – need to focus on your needs, your position and, yes, you can benefit from taking a wider perspective and look at the big picture when making decisions, but rarely does this need to include worrying about whether we are in a recession or not, you can tell and decide which way the wind is blowing without a windsock.

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