There’s been a lot of talk about an economic recession recently so I’m going to be writing several posts about starting and running a business through a recession, but first I want to define what a recession is.

A recession is commonly defined as a decline in a country’s gross domestic product (GDP), or negative real economic growth, for two or more successive quarters.

Many economists dislike this definition however as it does not take into consideration changes in other variables such as changes in the unemployment rate or consumer confidence. Furthermore using quarterly data makes it difficult to pinpoint exactly when a recession began or when it is over.

As an alternate the American organisation, the National Bureau of Economic Research’s Business Cycle Dating Committee reports on recessions in the USA. The committee determines the amount of business activity in the economy by looking at levels of employment, industrial production, real income and wholesale-retail sales. They define a recession as starting when business activity has reached its peak and starts to fall and ending when business activity bottoms out. Not immediately useful to us Brits, but our economy does tend to follow America’s.

In real terms, what this means to your business is a likely drop in customer spending as consumers and businesses tend to hoard their cash in times of uncertainty. The problem is that most businesses in anticipation of this drop in spending cut their investment in research, new product development, marketing, advertising and sales. I don’t think that’s a good idea, I’ll explain why in a future post.

In the meantime, are you planning for a recession?

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