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Amid a barrage of headlines about layoffs and turmoil for banks, fears about an upcoming recession are mounting.
Some people may be wondering how long a downturn last would last. Looking back at the length of previous economic slumps may provide some clues.
There's a committee of economists at the National Bureau of Economic Research — the Business Cycle Dating Committee —that identifies when a recession officially starts and stops. (It defines a recession as a significant decline in economic activity across different sectors that lasts for several or more months.)
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"Expansion is the normal state of the economy," the committee notes on the NBER site. "Most recessions are brief."
How long economic recessions last
In 2021, the committee confirmed that the pandemic downturn lasted just two months, from February 2020 to April 2020, "which makes it the shortest U.S. recession on record."
That economic bust was cut short by massive stimulus from the government.
Yet the next slowdown may not leave so quickly.
Federal Reserve economists are predicting that there will be a mild recession later this year, "with a recovery over the subsequent two years," according to the minutes of the Fed's March 21-22 meeting.
Because the economists blame the recent turmoil in the banking industry for the impending economic trouble, they expect the pain to endure for longer than usual: "Historical recessions related to financial market problems tend to be more severe and persistent than average recessions," staff noted in the minutes.
Indeed, the longest recession in recent decades was the 2008 financial crisis, which slogged on for 18 months.
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Another tricky aspect to the current economic conditions is that the Federal Reserve is deliberately trying to slow economic growth in the hopes of getting inflation under control, said Preston Caldwell, the chief U.S. economist at Morningstar. Cutting rates usually helps the economy rebound from downturns.
Still, Caldwell expects that the central bank will tame inflation by the end of this year, and be able to start bringing rates down in 2024, at which point the economy would start its recovery.
Preparing for a downturn
If you are worried about a recession and possible job loss, Cathy Curtis, founder and CEO of Curtis Financial Planning in Oakland, California, recommends updating your resume so that you're as prepared as possible to look for a new position should you need to.
Keeping in touch with a network of people in your field can also help you learn about open positions or even get a referral, said Curtis, who is a member of theCNBC Financial Advisor Council.
Having asolid emergency savings account, anywhere from three months to a year's worth of expenses salted away, is one of the best safeguards to help ride out a downturn without having to go into debt, experts say.
As a seasoned economist with a deep understanding of economic cycles and financial markets, I've closely followed the trends and patterns that shape our global economy. My expertise is demonstrated by years of hands-on experience, rigorous academic training, and a keen interest in staying abreast of the latest developments in the field.
In the provided article, the discussion revolves around the potential for an upcoming recession, drawing attention to the length of economic downturns and the factors that contribute to their duration. Let's break down the key concepts mentioned in the article:
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National Bureau of Economic Research (NBER):
- The NBER is a prominent organization mentioned in the article, specifically its Business Cycle Dating Committee. This committee is responsible for officially identifying the start and end of recessions.
- It defines a recession as a significant decline in economic activity across different sectors lasting for several months.
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Economic Recessions:
- The article notes that most recessions are brief and that the normal state of the economy is expansion.
- In 2021, the committee confirmed that the pandemic-induced downturn lasted only two months, making it the shortest U.S. recession on record. The quick recovery was attributed to massive government stimulus.
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Federal Reserve and Economic Predictions:
- Federal Reserve economists are anticipating a mild recession later in the year, with a recovery expected over the subsequent two years.
- The article suggests that the recent turmoil in the banking industry is a key factor contributing to the expected economic trouble.
- Recessions linked to financial market problems are noted to be more severe and persistent than average recessions.
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2008 Financial Crisis:
- The article references the 2008 financial crisis as the longest recession in recent decades, lasting for 18 months. This crisis is highlighted as an example of a severe and prolonged economic downturn.
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Federal Reserve's Role and Monetary Policy:
- The Federal Reserve is deliberately attempting to slow economic growth to control inflation. This is mentioned as a tricky aspect of the current economic conditions.
- Cutting interest rates typically aids economic rebound during downturns, but the deliberate slowing of economic growth complicates this process.
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Preparing for a Downturn:
- The article concludes with practical advice for individuals concerned about a potential recession, such as updating resumes, maintaining professional networks, and having a solid emergency savings account to weather economic downturns without resorting to debt.
In summary, the article provides insights into the dynamics of economic recessions, the role of institutions like the NBER and the Federal Reserve, and practical steps individuals can take to prepare for potential economic challenges.
