North Carolina economists last week told The Charlotte Observer they’re increasingly concerned about an impending recession.
The dreaded term is enough to send a shiver down the average American’s spine.
For many Americans, an upcoming economic downturn would be the first major recession they’ve experienced as an adult. So, what is a recession?
Recessions explained
Duke University professor and economist Connel Fullenkamp told the Observer that a recession, in simple terms, is a sort of rough patch for the economy.
“A recession is a generalized dropoff in economic activity. People stop buying as much and businesses stop producing as much, so unemployment rises and inflation starts to fall,” Fullenkamp said. “There are two main causes of recessions; a drop in demand, and a drop in supply.”
Usually, the signs of a recession are noticeable. People lose their jobs, companies notice sales dropping and businesses shut down at alarming rates.
“We really start to feel like we’re in a recession when demand and supply fall so much that unemployment rises above normal levels and the average family starts to worry about making ends meet because of the chance of losing a job,” Fullenkamp said.
Concerns over a possible recession have increased in the wake of a second consecutive quarter where the U.S. economy experienced negative growth with the gross domestic product (GDP) shrinking by 0.9% last quarter, CNBC reported.
“I think there’s a two-thirds chance we’ll have a recession by the end of this year. I’ve increased it considerably,” John Connaughton, director of UNC Charlotte’s economic forecast, told the Observer recently. “I’m more pessimistic than I was.”
Who decides when the recession officially begins?
Although the signs of a recession can be easily observed by anyone, this phase of the economic cycle must be declared by the National Bureau of Economic Research before the nation can be officially considered as “in a recession,” according to Fullenkamp.
“We won’t know when a recession begins until after it does, and in some cases, a long time after they actually begin. A group of economists who work with a think tank called the National Bureau of Economic Research form the official group that decides when recessions and expansions start and end,” he said.
The National Bureau of Economic Research (NBER) has not yet announced that the U.S. economy is currently experiencing a recession, AP reported.
How long do recessions last?
According to Fullenkamp, recessions don’t last as long as they used to. Economic trends over the past 75 years show that now, on average, upturns last three times longer than downturns do, Fullenkamp said.
“The good news is that recessions have been getting shorter and shorter over the last 75 years. Many recessions now last less than a year, while the upturns last three years or more,” he said. “We’ve just had two very long economic expansions in this century.”
The NBER is tasked with tracking how long recessions in the United States last. Data from the group shows that from 1854 to 1919, the average recession lasted for 22 months, while recessions taking place from 1945 to 2009 lasted for 11 months.
The most recent recessions in the U.S. economy are The Gulf War Recession which lasted for seven months from July 1990 to March 1991, The Dot Com Recession which also lasted for seven months from March 2001 to November 2001, The Great Recession which lasted for 17 months from December 2007 to June 2009, and The COVID-19 Recession which only lasted for two months from February 2020 to April 2020.
It’s not possible to predict how long a recession will last or when it will officially begin, but according to Fullenkamp, consumers shouldn’t be too worried about the looming recession either way.
“It’s impossible to predict how long the next recession will be, but if it’s an average recession, it will last about a year,” Fullenkamp said. “And there are good reasons to think that it may not even last that long. Families are in good shape financially and jobs are still plentiful.”
