With all the talk about economic recession lately, I’ve had that “here we go again” feeling. It got me wondering how many recessions I’ve lived through and what impact they’ve had on my life. You may have wondered the same thing.
First, though, what exactly constitutes a recession?
Recession is a period when economic activity is decreasing. It’s the span of time between a peak in economic activity and a trough, or low point. As traditionally defined by the National Bureau of Economic Research (NBER)—the semi-official decider of when the US economy is in recession—it is “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” But making the determination isn’t always as clear-cut as it may sound.
Two quarters of falling gross domestic product (GDP) do not necessarily indicate a recession, according to NBER methodology. To determine whether the economy entered a recessionary period and when it began, a committee of economists looks at a variety of data and measures of economic activity, including personal income, personal consumption, retail sales, wholesale sales, industrial production, unemployment, GDP, and others.
The committee makes its determination after the fact—often well after the fact. For example, with the most recent recession in 2020, NBER didn’t declare recession until 15 months later. Typically, recession determinations come four to 21 months after the recession has begun. We may not know for several more months whether we’ve been in a recession this year.
It turns out that I’ve lived through eight recessions, a fact that surprised me. It doesn’t feel like I’ve lived through so many. Perhaps that’s because the economic expansions between recessions have been significant lately, as we’ll see below.
You can see about how many recessions you’ve lived through in this table:
If you’re between 40 and 50 years old, you’ve lived through at least five recessions, and possibly as many as seven if you’re closer to 50. You’re an old hand at navigating this territory. If you’re in your 20s, you’ve only lived through two to three recessions, and probably only one since becoming an adult. For centurions, recessions are humdrum, with 17 under their belts (including the Great Depression in 1929). Recessions are a regular and normal part of the economic environment.
The good news about recessions is that they are typically fairly short and followed by a lengthy period of expansion. While NBER maintains recession records going back to 1854, many economists focus on the post-World War II time frame. Since 1945, the average recession from peak to trough has been 10.3 months, or less than one year. The average economic expansion after a recession since 1945 has lasted 64.2 months, or over five years. More recently, the average recession since 1981 lasted only 9.0 months and the expansions that followed averaged 103.3 months, or over eight years. For the last 40 years, the US economy has been in a state of expansion nearly 90% of the time.
Below is a listing of individual recessions since 1945, including how long they lasted and how long the economy expanded before the recession. It illustrates just how long our periods of expansion have been. For example, prior to the two-month recession in 2020 caused by the global pandemic, the US economy had been expanding for 128 months, or over 10 years.
While recessions are often fairly short in duration, the timing of recessions does not always align well with your business or personal plans. Now may not be a good time for you for a recession, as it wasn’t for me early in my career. I had just finished graduate school and was looking for new career opportunities going into the headwinds of the 1991 recession. With slim pickings from the usual employers, it took extra effort to locate a unique position that ultimately led me to a rewarding path for the next decade as the economy expanded. Reflecting on the list of recessions, you may see similarly that a recession influenced your life and career at some point, possibly in meaningful ways. Or you may see that recessions have had little impact on your life and career, as is true for many people.
A recession this year or early next year may present a short-term bump in the road for you. It’s possible that the US Federal Reserve and other central banks around the world may push the US and global economy into recession by raising interest rates high enough to bring inflation under control. If you are planning to make a career move, launch a product, or start a company, a recession now may make your task more difficult, briefly—but if so, just remember to stay focused on the long period of economic growth that typically follows.
Parkworth Wealth Management provides holistic wealth management services including financial planning, equity compensation planning, investment management, tax planning, and others, on a fee-only basis and as a fiduciary, acting in clients’ best interests. If you’re concerned about recession and how to position yourself financially in the coming months, schedule a complimentary consultation.
