Economists have classified historical periods in terms of the dates when economic activity peaked before entering a period of decline at least since the work of Wesley Mitchell about a century ago. A trough is the lowest point on the way down, and the period between the peak and the trough is known as an economic recession. The graph below depicts Buffett’s chosen metric, real GDP per person. It is represented on a logarithmic scale, with a change of 10 units on the vertical axis roughly corresponding to a 10% change in real GDP per capita. Vertical lines on the graph reflect NBER dates for business cycle peaks and troughs.
According to conventional wisdom, the recession ends when the economy begins to recover again, not when it has rebounded to the point that metrics like real GDP per person have reached new all-time highs. The latter criteria would always give you a later date than the genuine low point for economic activity, and a significantly later date in the case of a deep downturn and sluggish recovery like the one we’ve just experienced.
For the past 150 years or so, economists have used the term “recession” to refer to the period between a peak and a trough. Is it legal for Warren Buffett and the common-sense Americans on whose behalf he purports to speak to argue that we have been using the phrase inappropriately? I believe they have every right to have an opinion on this because the occurrences that economists designate as recessions are universally recognized as having an impact on everyone’s lives. As a result, it’s only natural that everyone feels qualified to discuss what the term “recession” should imply based on personal and direct experience. People are aware that they are still not back to where they were, and the statistics back this up. When economists say the recession is finished, however, they never claim that things have returned to normal.
So, in part, it’s just a semantic issue with how a term is defined. Economists use the term “recession” to refer to a tightly defined occurrence, whereas many others understandably want to be able to discuss the long-term effects of the event.
But I believe there is more to this than a semantic issue at hand. Economists argue the recession, in the sense that we use the term, has been ended for more than a year since conditions have been progressively improving rather than deteriorating. True, things haven’t improved as much as we’d hoped or expected, and they haven’t improved enough to put us back in the position we were in before the recession. Nonetheless, for the past 15 months, situations have been improving rather than worsening.
And that is a crucial truth that is often overlooked in the mainstream discussion of these concerns.
How long does it take for a recession to end?
A recession is a long-term economic downturn that affects a large number of people. A depression is a longer-term, more severe slump. Since 1854, there have been 33 recessions. 1 Recessions have lasted an average of 11 months since 1945.
How do we know when a recession is over?
Many people assume that a recession occurs when the gross domestic product (GDP) grows at a negative rate for two consecutive quarters. When the economy shrinks for two quarters in a row, it is considered to be in a recession.
This is more correctly referred to as a “technical” recession. It is frequently used, although the National Bureau of Economic Research (NBER) has a different approach for the US economy.
Recessions, according to the NBER, are severe drops in economic activity that span anywhere from a few months to more than a year. They don’t just look at GDP; they also consider GNI (GDI).
They also use some economic data that is reported monthly rather than quarterly. Industrial production, employment, and retail sales are all included.
- The value of all products and services produced by the economy is known as the gross domestic product (GDP). Negative GDP growth is always associated with recessions.
- Gross domestic income (GDI) is the total amount of money in the economy, including wages and taxes.
- Industrial production: During a recession, the manufacturing sector normally suffers, as evidenced by lower industrial production.
- Retail sales: When people have less money, they tend to spend less. Retail sales fall as a result of this.
It’s worth noting that the NBER doesn’t publish numbered criteria for these measures. They do, however, use them to predict when the economy is in decline.
Growth in the economy (called expansions) is followed by periodic dips in the typical business and economic cycles (called recessions).
Expansions take 5-10 years to begin, whereas recessions happen quickly and last anywhere from a few months to a year.
According to the NBER, the recession began in the month when the economy peaked and ended in the month when the economy bottomed out.
In other words, the recession begins at the top of the peak and ends just as the economy begins to grow again at the bottom of the trough.
The expansion, on the other hand, is the amount of time between recessions. It starts at the bottom of the economic cycle’s trough and concludes at the top of the cycle’s high.
The NBER does not provide exact dates, but it does state when the recession started and concluded. The Great Recession of 2007-2009, for example, started in December 2017 and concluded in June 2009.
Since then, the US economy has been growing. It has already surpassed the record for the longest expansion in modern history.
At the time of writing, the coronavirus pandemic is on track to bring the economy to a halt after a record-breaking expansion.
Is there going to be a recession in 2021?
Unfortunately, a worldwide economic recession in 2021 appears to be a foregone conclusion. The coronavirus has already wreaked havoc on businesses and economies around the world, and experts predict that the devastation will only get worse. Fortunately, there are methods to prepare for a downturn in the economy: live within your means.
How long does it take for a recession to end?
This recession differs from others in that it occurred extremely instantly, as if a spigot had been shut off. That makes one desire that the suffering would end in the same way: swiftly. However, it’s unlikely that the world would reopen with a massive switch; in fact, New York Governor Andrew Cuomo likened the process of reopening enterprises to turning a key “Phone.”
While some activity may restart as some businesses reopen in May and beyond, consumers may remain wary until testing is more widely available and a vaccination is available. Chairman of the Federal Reserve, Jerome Powell, has stated that he expects this to happen “Once the virus has been contained and the globe has returned to work and play, the economic recovery can be robust. While he refused to give a specific date, he did say that most people expect it to happen in the second half of the year.
Meanwhile, the statistics are depressing. We just commemorated the creation of 22.4 million jobs since the Great Recession. That slate had been wiped clean by April. As of April 23, 26.45 million Americans had filed for jobless benefits since the outbreak began. In comparison, the Great Recession resulted in the loss of 8.7 million jobs.
These figures are fueling fears that we are about to enter a depression, which is essentially a severe recession. It is usually defined as a three-year period of severe economic recession, with a GDP fall of at least 10%. Other indicators include high unemployment and low consumer confidence, both of which we already have in abundance.
But, even as we face an increase in unemployment and a battered economy, it’s critical to keep an eye on the bright side: Every stock market downturn has historically been followed by a strong rebound, and there’s no reason to believe that won’t be the case today. In fact, as long as you retain a long-term view, now is actually a wonderful time to invest.
While no one is enjoying the roller coaster ride that is the recession, we can all look forward to what we can only hope is a brief time of more turbulence followed by a high-speed elevator up to the top.
Lower Prices
Houses tend to stay on the market longer during a recession because there are fewer purchasers. As a result, sellers are more likely to reduce their listing prices in order to make their home easier to sell. You might even strike it rich by purchasing a home at an auction.
Lower Mortgage Rates
During a recession, the Federal Reserve usually reduces interest rates to stimulate the economy. As a result, institutions, particularly mortgage lenders, are decreasing their rates. You will pay less for your property over time if you have a lower mortgage rate. It might be a considerable savings depending on how low the rate drops.
What happens if the economic downturn lasts too long?
An economic downturn can be catastrophic for both businesses and individuals, because the two are inextricably linked.
Assume a company that makes widgets is experiencing a drop in sales and earnings. It will most likely decide to produce fewer widgets, which means fewer staff will be needed to run the assembly line and sell the widgets to retailers. From there, the consequences spread to a slew of ancillary enterprises near the core widget-maker. Because they are producing fewer widgets, they require less machinery, which has an impact on machine producers and repairers. Because retailers have fewer widgets on their shelves, sales are down. And the widget manufacturer may decide that it does not want to launch a second line of widgets after all, so it ceases to engage in research, design, and marketing.
All of the linked employees’ livelihoods are thus impacted, which might cause them to lose faith in the company. They, in turn, buy less widgets from other companies, putting all widget makers in the same boat. People are also less likely to eat out, travel, or renovate their homes, among other things. They may even cease paying their payments, producing even more problems for goods and service providers. It’s easy to understand how the loop is self-reinforcing. A recession begins as everyone pulls back.
Because corporations are producing and selling fewer widgets, the stock market is likely to collapse as the spending slump deepens. Consumers’ jobs may be lost, or their hours or income may be cut. They may have difficulty paying their bills at that moment, leading to credit problems and, in extreme circumstances, bankruptcy.
As a result of the coronavirus outbreak, we’re already witnessing some of these symptoms. Businesses are closing (some temporarily), and millions of people are losing their full-time jobs or contract work. As a result, they have less money to spend and may struggle to pay their expenses. With a $2 trillion stimulus plan that would deliver cash payouts to Americans, create a fund to lend to small firms, and enhance (and expand eligibility for) unemployment benefits, the government has stepped in to try to alleviate the consequences.
What does a recession look like?
There have been five such periods of negative economic growth since 1980, all of which were classified as recessions. The worldwide recession that followed the 2008 financial crisis and the Great Depression of the 1930s are two well-known examples of recession and depression. A depression is a severe and long-term economic downturn.
Is the economy on the decline?
Indeed, the year is starting with little signs of progress, as the late-year spread of omicron, along with the fading tailwind of fiscal stimulus, has experts across Wall Street lowering their GDP projections.
When you add in a Federal Reserve that has shifted from its most accommodative policy in history to hawkish inflation-fighters, the picture changes dramatically. The Atlanta Fed’s GDPNow indicator currently shows a 0.1 percent increase in first-quarter GDP.
“The economy is slowing and downshifting,” said Joseph LaVorgna, Natixis’ head economist for the Americas and former chief economist for President Donald Trump’s National Economic Council. “It isn’t a recession now, but it will be if the Fed becomes overly aggressive.”
GDP climbed by 6.9% in the fourth quarter of 2021, capping a year in which the total value of all goods and services produced in the United States increased by 5.7 percent on an annualized basis. That followed a 3.4 percent drop in 2020, the steepest but shortest recession in US history, caused by a pandemic.
Are we currently experiencing a depression?
According to new research from Boston University School of Public Health, the high rate of depression has continued into 2021, and has even deteriorated, rising to 32.8 percent and harming one in every three American citizens.