Key takeaways
- A recession occurs when economic indicators like gross domestic product, consumer demand and employment decline
- Since World War II, the average recession in the U.S. lasts around 10 months
- Going back to the 1850s, the average recession grows a little longer – about 17 months
- Currently, economists predict a 70% chance that the U.S. could suffer a recession within the next year
With all the recent talk of inflation, interest rates and job openings, you’ve probably heard murmurs about impending recession fears. Though we’re not in one – yet – economists generally expect the U.S. to experience a recession this year.
The likely culprit: a potent combination of ongoing pandemic-era supply chain issues and the Fed’s battle with inflation.
But exact predictions on when and how severe vary. Wells Fargo, for instance, sees the U.S. entering and exiting a recession within 12 months.
Goldman Sachs and JPMorgan Chase take a less detailed approach, projecting some economic bruising on an unspecified timeline.
Meanwhile, Barclays Capital foretells that 2023 will see the worst global economy in forty years.
In other words, even the experts haven’t reached a unified consensus on when a recession will happen – if it does. Nor can they agree if it will be shallow and mild or deep and gouging.
Which begs another question: How long do recessions last? And, more specifically, how long will this one last? (And how can Q.ai help?)
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Let’s take a look.
What makes a recession, a recession?
The broadly-understood definition of a recession is that an economy must experience at least two consecutive quarters of declining gross domestic product (GDP). But that’s not the whole story.
In practice, official recession declarations are made by NBER, or the National Bureau of Economic Research. NBER defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”
To wit, NBER considers changes to several key economic indicators like:
- Real (inflation-adjusted) personal incomes
- Payroll and self-reported employment numbers
- Retail sales
- Industrial production output
- GDP fluctuations
However, not all data is weighted the same. If the economy takes a particularly hard hit in just one or two components, NBER may declare a recession even if other segments continue to perform.
For instance, while the economy dipped for just two months in spring 2020, the decline was so severe and wide-reaching that NBER declared a recession anyway.
What causes recessions?
Recessions can occur for many reasons, but they generally stem from sudden economic shocks or imbalances. Occasionally, a country’s central bank may cause a recession – intentionally or otherwise – while cooling an overheated economy.
Consider the 2020 recession, which stemmed from economic shutdowns and massive spending declines as millions lost their jobs. And in 2008, the Great Recession followed a crash in the bloated housing debt market.
On a practical level, a recession occurs when an event or series of events causes economic growth to fall. Declining growth is accompanied by decreased consumer spending, smaller business profit margins and rising unemployment.
Often, these factors feed into each other: as people lose their jobs, they spend less money, causing profits to shrink further. To cut their losses, businesses slash payrolls and the recession continues.
Despite the economic pain they bring, mild recessions are mostly accepted as part of the natural business cycle.
When economies grow quickly, they reach a tipping point and “correct” imbalances by cooling off. (Either naturally or with a little help from a country’s central bank.) Soon enough, production ramps up, the economy expands and the business cycle goes on.
How often do recessions occur?
Since World War II, the U.S. has averaged around five years between each recession. We’ve experienced just three since the turn of the century:
- The dot-com bubble burst in 2001
- The housing bubble burst in 2007
- And the Covid-19 recession in 2020
The length of time between these recessions has increased, too. While six years passed between the dot-com and housing bubbles, the next recession took over a decade to hit.
How long do recessions last?
Recessions can last from a few weeks to several years, depending on the cause and government response.
Data from the National Bureau of Economic Research shows that between 1854 and 2022, the average recession lasted 17 months. But when you shorten the timeframe to between WWII and today, the average recession lasted just 10 months.
Bear in mind that this is just an average, not a rule.
For instance, the early 1980s saw a recession that sprawled on for 16 months. Meanwhile, the post-housing bubble Great Recession lingered for 18 months between 2007 and 2009.
On the other end of the spectrum, the 2020 Covid-19 recession is the shortest ever on record at just two months.
Overall, recessions make up a relatively small proportion of our economic timeline. In the last 70 years, the U.S. has spent under 15% of its time in an official recession. And though they bring rough times for many, the economy often roars back to life stronger than ever on the other side.
The length of every recession since WWII
What factors play into a recession’s length?
How long recessions last depends on factors like market conditions, the underlying cause and the government’s response.
For instance, the Great Recession was a global affair kicked off by an overblown housing bubble. When it finally burst, millions of people were foreclosed upon or ended up underwater on their mortgages. GDP plunged by over 4%, creating a gap of nearly $1 trillion. Meanwhile, major banks like Lehman Brothers were overrun by subprime loans and ultimately shut down. Though it officially lasted just 18 months, the economic impacts of the Great Recession trickled on for years.
By contrast, the Covid-19 recession kicked off when governments effectively shut down entire segments of their economies to prevent the spread of Covid. But when the world reopened again, many bounced back quickly due to being strongly-positioned pre-Covid. In some countries – the U.S. included – economic stimulus policies gave the economy the thrust it needed to hop back in the saddle.
However, the impacts of Covid-19 are still unwinding. While the job market has largely recovered, supply chain snarls and rising corporate profits have led to sky-high inflation. As a result, the Federal Reserve has spent the last year steadily hiking interest rates in an attempt to cool demand (and prices).
How long will this recession last?
Unfortunately, there’s simply no way to know if a recession will hit or how long it will last. Currently, most economists predict that a mild recession could last anywhere from a few months to over a year. But until—and if—it happens, we’ll just have to wait and see.
No matter the recession, Q.ai has your back
As the likelihood of a recession creeps up with every interest rate hike, we here at Q.ai believe at being prepared. Many investors are turning to so-called “recession-proof” stocks, industries and products to safeguard their finances.
But if sorting through all your options and hoping you’ve made the right choices sounds like a lot of work (it is), we offer another alternative.
With Q.ai’s AI-backed Investment Kits, you can enjoy the power of a hedge fund in your pocket without researching yourself silly. Simply choose the Kits that suit your lifestyle and decide whether you’d like to DIY or hand the reins to our AI. Then, sit back and let our artificial intelligence do the heavy lifting for you.
Seriously – it’s that easy.
And while we can’t promise you’ll “beat the recession,” we can guarantee that we’ll be right by your side to help secure your future with smarter investments.
That’s the power of AI.
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