What happens in a recession?

[demoivre]

No, talking about a recession and consumer confidence aren't related.

I disagree . Consumer confidence is affected by current as well as future economic prospects. The latest IIB/ESRI Consumer sentiment index showed a decline because of consumers becoming more negative in their outlook for the labour market and the overall economy, according to the authors.

Consumer confidence is related to income and expenditure

More importantly consumer confidence is affected by future income flows, which in turn, for many people, will depend on the state of the economy.

Recession talk makes people examine their income prospects and their expenditures in a new light.

True. Their confidence in their future income streams will be called in to question when there is talk of a recession.

 

[murphaph]

No, talking about a recession and consumer confidence aren't related.

Consumer confidence is related to income and expenditure.

Recession talk makes people examine their income prospects and their expenditures in a new light.

I think you're contradicting yourself there somewhat. If people re-evaluate their spending based on a perception that the economy (nd hence their job) is at risk, they will (if they are acting rationally) reel in their spending and hold money out of circulation in their bank or under their mattress!

If enough consumers stop spending money, the economy slows.

 

[demoivre]

If enough consumers stop spending money, the economy slows.

Therein lies the problem as around 60% of GDP is consumption expenditure - less demand for goods and services leads to less demand for labour, which is derived form the demand for those goods and services.

 

[Afuera]

If people re-evaluate their spending based on a perception that the economy (nd hence their job) is at risk, they will (if they are acting rationally) reel in their spending and hold money out of circulation in their bank or under their mattress!

Surely it will only have an impact if the negative perception matches the reality though?

If I'm earning a decent wage and have lots of work lined up to keep me busy for the next few years then why would I have to reel in my spending? On the other hand, if I notice that my employer is not hiring any more people and is trying to introduce a pay freeze, it would be foolish not to take notice.

I don't think you can ever seriously argue that simply talking about a recession is enough to make people stock up on the tinned cans and dive into their bunkers.

 

[gurramok]

Think the Irish economy maybe in recession already.
[broken link removed]

2.2% decline in GNP in Q4 '07 from Q3 '07 is bad.

We just have to wait for Q1 '08 stats out in June to confirm if the R word is here.

 

[z109]

The point I am making, as Afuera alludes to, is that recession talk does not cause recessionary conditions, it is the result of them.

If you see your income being squeezed in the future, the response is to cut spending and write down debt. Companies do this first, their employees see the way the wind is blowing and follow suit.

Purchasing managers sentiment is a leading indicator, as it shows what business is forecasting in the short term, based on future orders. Consumer sentiment is a lagging indicator as the consumer is the last to know!

This idea that it is possible to "talk down the economy" is nonsense. If that was the case, there would have been a recession here post-9/11 when the US went into recession and there was lots of talk of the EOTWAWKI. It didn't happen because:
a) the economic fundamentals were strong
b) easy credit allowed consumer debt spending to rocket

 

[MOB]

".......the impact usually seems to be considerably less for Switzerland than for the rest of Europe."

I have read somewhere (but have not seen any data to back up the assertion) that the Swiss have an economic safety valve in the form of a reasonably large population of immigrant workers, that the immigrants do not integrate to any great extent and that in times of recession, the Swiss have been able to simply boot them out.

To some extent, perhaps we have the same thing now: not because we will boot people out, but simply because they will leave for their own countries (or to wherever the work is - pre-Olympics London perhaps) if there is a serious downturn.

 

[room305]

I have read somewhere (but have not seen any data to back up the assertion) that the Swiss have an economic safety valve in the form of a reasonably large population of immigrant workers, that the immigrants do not integrate to any great extent and that in times of recession, the Swiss have been able to simply boot them out.

To some extent, perhaps we have the same thing now: not because we will boot people out, but simply because they will leave for their own countries (or to wherever the work is - pre-Olympics London perhaps) if there is a serious downturn.

I'd say this assertion about the Swiss is rather dubious as it gives weight to the lump of labour fallacy.

I don't see how foreign workers in Ireland leaving in their droves is going to help those who remain to pay back debts they owe. Nor will it do anything about uncompetitive labour markets, a bloated public sector, powerful trade unions, a weak government, a strong Euro and more than three hundred thousand empty houses.