Though the economy occasionally sputtered in 2022, it has certainly been resilient — and now, in the second quarter of 2024, the U.S. is still not currently in a recession, according to a traditional definition.
Even with tumultuous events last year, such as the failure of three U.S. banks, the nation has not tipped into recession — and certainly not a depression, either.A depression is an extended economic breakdown, and we have not seen signs of that kind of pain. (See recession vs. depression.)
The definition of a recession
The conventional benchmark has been that two consecutive quarters of a generally slowing economy defines a recession.
That definition was achieved in the first six months of 2022 as part of a shallow economic decline. In the first quarter, the economy shrank 1.6%, then improved, though still fell 0.6% in the second quarter due to lower inventory spending, housing investments and federal and state government spending.
However, the Bureau of Economic Analysis, an agency embedded in the U.S. Department of Commerce, estimates that in the first quarter of 2024, the economy grew at an annual rate of 1.6%.
The Federal Reserve, after issuing seven interest rate increases in 2022 and four in 2023, is not trying to trigger a recession but does want to slow the economy. The Fed had paused interest rate hikes in June 2023, noting inflation was showing some signs of easing, but warned that further rate increases were likely. On July 26, 2023, it fulfilled that warning by raising rates a quarter-point.
More recently, the Fed left rates unchanged in September, November and December of 2023 and again in January, March and May of this year.
Lowering consumer demand is the tricky elixir intended to reverse the higher prices we face with inflation. The risk of a recession is always a possible side effect.
How long do recessions last?
Historically, recessions have lasted anywhere from two months to several years, according to the National Bureau of Economic Research. But our current economic climate presents unique circ*mstances that make it difficult to draw a direct comparison with past events.
Unemployment is still low, but we hear more talk of layoffs and business expense cutting each week. The wars in the Middle East and Ukraine are another concern.
Economic cycles are impossible to predict, so it's best to be financially prepared.
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There are a few ways to deal with current economic challenges and prepare for future ones. Starting or beefing up an emergency fund can help you face financial setbacks without going into debt.
Though the economy occasionally sputtered in 2022, it has certainly been resilient — and now, in the second quarter of 2024, the U.S. is still not currently in a recession, according to a traditional definition.
That said, the risk of a recession has been elevated since the US Federal Reserve began its tightening cycle in March 2022, Fed Chair Jerome Powell told reporters in December. However, he said, “there's little basis for thinking that the economy is in a recession now.”
Cash: Offers liquidity, allowing you to cover expenses or seize investment opportunities. Property: Can provide rental income and potential long-term appreciation, but selling might be difficult during an economic downturn.
Mass layoffs in certain industries or increased unemployment may signify a recession. We've covered declining GDP growth, falling industrial production, and trade. Here are some additional markers to watch out for: Inverted yield curve: The yield curve shows if bond investors prefer short-term or long-term debt.
According to the National Bureau of Economic Research (NBER), the average length of recessions since World War II has been approximately 11 months. But the exact length of a recession is difficult to predict. In general, a recession lasts anywhere from six to 18 months.
Even with tumultuous events last year, such as the failure of three U.S. banks, the nation has not tipped into recession — and certainly not a depression, either. A depression is an extended economic breakdown, and we have not seen signs of that kind of pain. (See recession vs. depression.)
Not this year nor the year after. The Federal Reserve's policymaking committee of 19 officials released a new set of economic projections last week, showing that they now expect economic growth in 2024, 2025 and 2026 to be even stronger than they previously thought.
Cash gives you a lot of options. You can spend it if you need to, for example, if you lose your job during a recession, and it allows you to make an opportunistic investment if the stock market suddenly sells off or you find the perfect house later on. But there is a downside to holding too much cash.
Because a decline in disposable income affects prices, the prices of essentials, such as food and utilities, often stay the same. In contrast, things considered to be wants instead of needs, such as travel and entertainment, may be more likely to get cheaper.
What Are the Biggest Risks to Avoid During a Recession? Many types of financial risks are heightened in a recession. This means that you're better off avoiding some risks that you might take in better economic times—such as co-signing a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt.
It's also important to note that recessions tend to be much shorter than economic expansions. The economic cycle typically features a multi-year expansionary phase -- usually four to five years -- followed by a contraction of less than 18 months on average.
During a recession, stock prices typically plummet. The markets can be volatile with share prices experiencing wild swings. Investors react quickly to any hint of news—either good or bad—and the flight to safety can cause some investors to pull their money out of the stock market entirely.
'Recessions' vs. 'Depressions' in the Economy. A recession is a downtrend in the economy that can affect production and employment, and produce lower household income and spending. The effects of a depression are much more severe, characterized by widespread unemployment and major pauses in economic activity.
December 2007–June 2009. Lasting from December 2007 to June 2009, this economic downturn was the longest since World War II. The Great Recession began in December 2007 and ended in June 2009, which makes it the longest recession since World War II.
The Long Depression was, by a large margin, the longest-lasting recession in U.S. history. It began in the U.S. with the Panic of 1873, and lasted for over five years.
Interest rates usually fall in a recession as loan demand declines, investors seek safety, and consumers reduce spending. A central bank can lower short-term interest rates and buy assets during a downturn to stimulate spending.
The US economy is headed for a recession in the middle of 2024, Citi's chief US economist said. The economic data seems strong but is hinting at signs of a decline, as seen in the latest jobs report. Credit-card delinquency rates are also on the rise, and retail sales data has shown a drop in activity.
For example, in 2022, according to the U.S. Bureau of Economic Analysis, GDP declined slightly in the first quarter (-2.0%) and second quarter (-0.6%), but given a low unemployment rate and other favorable factors, this period was not considered an official recession.
Recession likely in 2024. Economic growth was decent in the second quarter at 2.0%, but that does not mean we're out of trouble. The contractionary pressures remain, and the delaying factors are dwindling. The downturn will be mild, as recessions go, but a recession nonetheless.
Most commentators and analysts use, as a practical definition of recession, two consecutive quarters of decline in a country's real (inflation-adjusted) gross domestic product (GDP)—the value of all goods and services a country produces. Although this definition is a useful rule of thumb, it has drawbacks.
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