What does a recession look like? | 9
recession. But it does not help much in deciphering the current
state of the economy and telling us whether a recession is at all
likely. If anything, Table 2 shows that there is some way to go
before the slowdown qualifies as a recession on any definition.
Only house price inflation is giving a clear warning signal. On
the basis of these indicators at least, the problems faced by the
economy look modest in scale relative to those in previous
recessions � especially in terms of the increases in inflation and
interest rates.
But many of these categories are lagging indicators, and we
should not expect to have witnessed much deterioration at this
stage of the cycle. It is still early in the downturn and it will be
some time yet before the full picture becomes apparent. And
since this slowdown is different in origin from previous ones,
these indicators might not be the right ones to be studying.
IMPACT OF RECESSION
ON COMPANIES
What does a recession mean for business? This depends on the
genesis of the slowdown and which sectors are most exposed. In the
1979-82 downturn, manufacturing suffered severely as a result of the
squeeze on exports from the strength of sterling, while 10 years later
the slump in house prices and problems of negative equity meant
that consumers and the property market were worst affected.
Short-term movements in profit margins are closely correlated
with movements in economic activity. Companies are slow to cut
employment in response to a sudden and unexpected drop in
output at the start of a recession. Productivity falls, pushing up
Private non-financial companies' profits (PNFCs)
CHART 2
Source: ONS. UKCS � oil companies
% of GDP

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