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Note: This article was originally published in 2011, during the "Great Recession." While that recession has long since ended, this content is still applicable to any subsequent market recessions.
If you paid attention to the grim financial news during the Great Recession, you may recall hearing a good deal of chatter about whether or not we were headed for a double-dip recession. And while most of you are probably familiar with the dreaded double-dip when it comes to chips and dip, you may be wondering what exactly constitutes a double-dip with regard to recessions, or, for that matter, who determines whether we are experiencing a recession and how exactly one is defined.
So, let’s try and answer these questions before moving on to offer some advice on how to cope with a recession, double-dip or otherwise.
In the U.S., the National Bureau of Economic Research (NBER) has a Business Cycle Dating Committee that is tasked with maintaining a chronology of the country’s business cycle and is the body that officially calculates when recessions begin and end. Unfortunately, its definition of a recession as “a period between a peak and a trough” in economic activity is somewhat less than instructive.
Perhaps because of the NBER’s nebulous definition, the financial press and most professionals in the field have come to rely on the more tangible idea that two consecutive quarters of decline in real Gross Domestic Product (GDP) constitutes a recession. (For those of you who decided to give Econ 101 a pass, GDP is the total value of all goods and services produced in a country in a given year.) We’ll rely on this commonly accepted and easily quantifiable definition for our purposes here.
And while the NBER does not define a special category of double-dip recession, practically speaking, this refers to a recession that begins shortly after the previous one has ended. In the current case, people are concerned that there may be another recession looming, despite the fact that the one that resulted from the global financial crisis ended in June of 2009, according to the NBER.
So, we now know that during a recession, the total amount of goods and services being produced is declining and that we may be headed for another such period even though we only recently emerged from the particularly nasty recession of 2007 through 2009.
Because the amount of goods that gets produced goes into decline when we experience a recession, recessions are often characterized by periods of high and rising unemployment, as employers are forced to lay off workers when demand for their products sags. As more folks enter the ranks of the unemployed, the demand for goods and services can fall further, as it is tough for the out-of-work to justify buying anything other than the essentials.
In this way, recessions and unemployment can have a negative self-reinforcing effect that makes things tough not just for the unemployed but for those trying to keep their businesses afloat during these turbulent times.
While we are not here to make economic predictions, we would like to offer small business owners five strategies to help cope with the next recession whenever it does arrive.
While there are no surefire tricks to surviving a recession, following the preceding advice should increase your odds of making it through until things get better; and in the long run, they always do.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.