Reading Up On Recessions

 

Reading Up On Recessions     Background Stemming from the Latin word “recessus” (meaning “a retreat”), recessions are sustained periods of declining activity in a country’s economy. During a recession, unemployment rises while economic output falls across a large swath of industries. Recessions are inevitable in modern economies, with one occurring about every six to seven years (What causes recessions?).  One common definition of a recession is when a country logs two consecutive quarters of shrinking gross domestic product, but in practice, these economic phenomena are more complex.   History The US has been through 34 recessions since 1854, according to the National Bureau of Economic Research. But over time, they’ve become both shorter and less frequent. Since 1980, the US has only experienced six recessions. The Great Depression, which started in 1929, is considered the most significant economic crisis the US has ever faced. There’s no technical definition for when a recession becomes a depression, but the scale is tipped by severity and length—one signal is a GDP drop of more than 10%. Several new federal agencies, including the Civilian Conservation Corps and the Works Progress Administration, were created on the heels of the Great Depression to protect Americans in the event of economic disasters. The two worst economic slumps the US has experienced since the Great Depression are the 2008 financial crisis (also known as the Great Recession) and the so-called “double-dip recession” of the early 1980s. The worst recessions in US history became global events, impacting major economies with US ties. The most recent US recession was in 2022, though economists argue about whether or not it should count as a recession at all. Although GDP shrank for two quarters in a row, employment continued to rise, and personal income (excluding the end of COVID-19 stimulus measures) increased as well. Recession Indicators When economists see that short-term bonds are making higher yields than long-term bonds (called an “inverted yield curve” that can be seen when comparing two- and 10-year Treasury bonds on a graph), many predict an impending recession. Yield curve inversions signal a loss of investor confidence in the economy’s long-term health and have preceded every US recession since 1956. Economists at NBER use a more complicated rubric to define a recession. The organization looks at six economic indicators: nonfarm payrolls, industrial production, personal income, employment, personal consumption, and manufacturing sales. People also attempt to define recessions in more creative ways. The “men’s underwear index” states that sales of men’s underwear fall during recessions, and the “lipstick index” says people skip big purchases for small luxuries like lipstick. Social media users identified something they called a “vibecession” in the early 2020s, citing the comeback of high-energy “recession pop” music and the prevalence of “recession blondes” who opt for lower-maintenance hairstyles.  Ultimately, many recessions are called retroactively because it’s difficult to define them while an economy is undergoing one. Recovery Recessions can last anywhere from months to years. To encourage economic growth, governments use policy levers such as lowering interest rates or introducing a stimulus. (See how stimulus money was doled out during the pandemic recession.) Recoveries from recessions can be uneven. (Learn about the different shapes of recoveries.) Even when GDP returns to positive growth, employment often takes longer to bounce back. At the same time, the most vulnerable populations, who may have entered the labor market more recently or are carrying significant household debt, are often the hardest hit and experience the recession for longer as they struggle to regain their financial footing.