What is a 'Rose-Colored Recession'

Rose-colored recession describes the phenomenon of market observers expressing optimism about the economy while in the midst of a recession. Market participants first coined the term during the financial crisis of 2008-2009. At that time, policymakers, economists and members of the media sometimes responded to economic data by saying the numbers were, “not as bad as expected” or “not as bad as they could be.”

These statements acknowledged the decline of the economy while expressing a sense of optimism. The term rose-colored recession comes from referring to overly-optimistic people as viewing the world “through rose-colored glasses.”

Responding optimistically to bad economic data, such as unemployment numbers or earnings reports, generally reflects an expression of hope that the recession will end soon, even if there is no actual evidence to suggest that it will.

BREAKING DOWN 'Rose-Colored Recession'

A rose-colored recession does not mean that the economy is on the mend or will improve in the near future. While predictions by market observers can sometimes help fuel a bull market, a recession usually requires specific actions by policymakers in order to reverse course.

For example, in response to the financial crisis, the Federal Reserve lowered a crucial  interest rate to almost zero in order to promote liquidity and also provided $7.7 trillion worth of emergency loans to banks in an effort to halt the recession and turn the US economy around. Beyond economic stimulus packages, the US government also introduced a robust set of new regulations to the financial sector through the Dodd-Frank Act.

While there has been disagreement about the appropriateness of these responses to the recession, they represent the scale of action necessary to effectively alter the direction of the economy.

Recessions and Affordable Luxuries

Not all sectors or industries are affected by a recession in the same way. This means that some numbers may indicate economic growth in a way that does not represent the economy as a whole.

The “lipstick effect” describes the phenomenon of some “affordable luxuries” seeing a rise in sales during difficult economic times. According to Euromonitor, small but not completely necessary expenditures, such as lipstick, cigarettes, and pet care often see growth during a recession, as people decide to spend extra money on things that make them feel good and comfortable without having to break the bank.

These small purchases can help consumers feel like they’re not sacrificing quality of life, despite larger economic woes. Likewise, the ability of consumers to continue to spend money on non-essentials can help fuel optimism that the economy is improving, or that things aren’t as bad as a close analysis would actually indicate. 

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