Recession
A significant, widespread decline in economic activity lasting more than a few months — formally declared by the NBER based on employment, income, consumer spending, and industrial production, not just two quarters of negative GDP.
The macro regime is unambiguously STAGFLATION DEEPENING. The three-pillar structure remains intact and strengthening: (1) Energy-driven inflation shock — WTI at $104-111, +40% in 1M, flowing through PPI (+0.7% 3M, accelerating) into a CPI/PCE pipeline that has not yet absorbed the full pass-through,…
What Is a Recession?
In the United States, recessions are officially declared by the National Bureau of Economic Research (NBER) Business Cycle Dating Committee. Despite the popular "two consecutive quarters of negative GDP" definition, the NBER's actual criteria are broader:
"A significant decline in economic activity that is spread across the economy and lasts more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."
This means a recession can begin even without two negative GDP quarters, and the NBER's declarations come with a significant lag (often 6–12 months after the recession has already begun).
The Anatomy of a Recession
Recessions typically follow a predictable sequence:
- Credit tightens: Banks raise standards, borrowing costs rise
- Business investment falls: Capex deferred, hiring slows
- Consumer spending declines: Confidence drops, discretionary spending cut
- Employment falls: Layoffs accelerate, unemployment rises
- Revenue and earnings fall: Corporate margins squeezed
- Credit losses mount: Defaults rise, banks restrict further
Each stage reinforces the next — the recession self-propagates until policy intervention (rate cuts, fiscal stimulus) breaks the cycle.
Recession Indicators to Watch
- Yield curve inversion: 2s10s inverted → recession typically follows 6–24 months later
- Sahm Rule: Unemployment 0.5pp above its 12-month low
- ISM Manufacturing PMI < 50: Contraction in manufacturing
- Conference Board LEI (Leading Economic Index): Multi-consecutive-month declines
- Credit spreads: HY spreads > 600–700bps historically signal recession risk
Asset Performance During Recessions
- Government bonds: Rally (flight to safety, rate cuts)
- HY credit: Sell off sharply (defaults rise)
- Equities: Bear market (earnings collapse + multiple compression)
- Commodities: Fall (demand destruction)
- Gold: Mixed — rallies on fear, may fall if deflation dominates
- USD: Often strengthens initially (safe haven demand)
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