The "R" word.

A recession, mild or not, what's the difference?

The last severe recession in the United States came in 1980-1981 during the Reagan-Bush years. Interest rates shot up, unemployment soared, and U.S. industrial output shrank We had off shocks in the stock market and at the gas pumps. Within weeks of the junior Bush-Cheyney administration, economists and financial analysts were biting their tongues, leery of saying the "g" word. It's not likely we'll see, in 2001, that kind of economic upheaval as in the early '80s. But after first-quarter reports of corporate earnings, the unemployment rate, and the Gross Domestic Product (GDP), a recession--however mild--is here.

The word recession typically refers to an economic downturn where the GDP, the market value of goods and services we produce as a country, adjusted for inflation, turns negative. Traditionally, economists have characterized a recession as two consecutive quarters of decline in the country's GDP. Federal Reserve Chairman Alan Greenspan recently defined a recession as when the economy changes in a substantial way so that the nation is getting less output. Many financial gurus believe this is a more accurate definition. That's why a recession now refers to a major economic slowdown. Other definite signs of a recession include increases in unemployment rates and declines in corporate earnings due to less consumer demand in the economy. If a company sells less of its products then its earnings decline.

Obviously, things seem less risky during periods of prosperity. But a period of economic slowdown means investments of all kinds can lose value and make investing seem riskier. As the saying goes, nothing lasts forever. Historically, a recession lasts 12 months to 18 months. Despite how devastating a recession, the U.S. economy has always bounced back and corporate earnings have always grown.