Worried about an economic downturn? Here’s what you can expect in a typical recession, according to economists

There has been a lot of chatter recently about the possibility of a recession.

Yet what exactly does that mean — and what would a potential downturn look like?

A recession is defined as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months,” according to the National Bureau of Economic Research.

More from Invest in You:
Suze Orman: Every person should have series I bonds
Strategies to pay off credit card debt as interest rates rise
What the Fed’s rate hike means for you

It’s also ultimately inevitable during the course of the normal economic cycle, said Mark Hamrick, senior economic analyst at Bankrate.

“It should not be shocking that they occur,” he said. “It is usually the timing, the cause and the depth and duration of them that catch people by surprise.”

The risk of a recession

UBS, for example, has a base case forecast of “no recessionMark Zandi, chief economist at Moody’s Analytics, also thinks as things stand now, a recession is unlikely.

“The economy is slowing and it will be uncomfortable over the next 12 to 24 months, but I think we will make our way through it without a recession,” he said.

Of course, something could happen to change that projection.

“We are very vulnerable to anything else that could go wrong because things are so fragile,” Zandi explained.

‘The economy comes to a standstill’

Still, Zandi’s current prediction still means some economic pain ahead. “The economy comes to a standstill, meaning months where we are getting little job growth or negative job growth,” he said.

Unemployment would start to notch higher, perhaps hitting 4% or 4.5% and inflation, while moderating, will still be high, he said.

He doesn’t see stock prices going anywhere and housing values ​​remaining, at best, flat or even declining in some markets.

“For the average American, it is not just going to feel great,” he said.

What happens during different types of recessions

Jim Young | Bloomberg | Getty Images

What a ‘typical’ recession looks like

A post-World War II typical recession lasts about six to 12 months, although some were longer and one was shorter, Zandi said.

The most recent recession occurred in 2020 and was brief — only two months long. The longest recession occurring after 1948, the Great Recession, spanned 18 months, beginning December 2007 and ending June 2009.

In a garden variety recession, the economy typically loses 3 million to 4 million jobs, and unemployment can get as high as 6%, Zandi said. The stock market may fall another 5% to 10% and national house prices decline about 5% to 10%, he said.

That doesn’t necessarily mean that’s what will occur if the economy does fall into recession. Right now, the fundamentals of the economy are good, Zandi said.

“There is a good chance [if] we do suffer a recession, [that] it will be less severe than a typical one,” he predicted.

‘Prepare for the possibility’ of a recession


Leave a Comment

Your email address will not be published. Required fields are marked *