While the word “Recession” gets thrown around a lot, it isn’t likely that you’ve heard a complete definition of what it means. Understanding what causes a recession, as well as a few of their key features, can be a massive help when it comes to recession-proofing your financial situation. If you’re interested in learning more, keep reading below.
What Does “Recession” Mean?
Put simply, a recession is two consecutive quarters of negative GDP growth. This means that the total economic activity of the country has declined for at least six months. Which means by the time a recession is announced, you’ve already been living in one for some time. That’s right – as of today, it’s official that the U.S. has been in a recession for at least the last few months. Because recessions are caused by a slowdown in economic activity, they also come along with a few bad side effects: unemployment, decreased consumer demand, and lower sales. All of these can cause issues for major businesses and everyday consumers alike.
How Bad Are They?
The length and severity of a recession can vary greatly, and no two are exactly alike. The U.S. has had many recessions in the last few decades, most recently facing the COVID-19 recession that lasted only a few months in February. This is one of the quickest, harshest recessions we’ve faced in the last 20 years. That said, there’s no telling exactly how similar it might be to this one. We’re currently seeing relatively low unemployment, but costs that are increasing because of high inflation. These increased costs, when mixed with the decline in demand typically seen with recessions, could be bad – but it could also be something that we’ve already seen the worst of.
Like we mentioned above, no two recessions are the same. You’ve also already been living in one for a few months by the time they’re announced. While not exactly the same, the number of recessions we’ve had allow us to know a few things: They generally occur every 3-4 years, post job losses of 3-4 million, and feature both stock market and house price declines.
How long do they last?
The length of a recession is generally measured by the amount of time it takes for the economy to go from its peak to its trough, meaning the total fall before recovery can start to take place. Over the last 100 years, the average recession lasted about 15 months. While that seems like a long time, try to remember that you’ve already been in one for over a third of that before a recession is even announced. Their length can also vary greatly depending on macroeconomic factors, with the most recent COVID-19 recession only lasting two months.
While these numbers may seem scary, it’s important to remember that you can play an active role in mitigating the affects a recession has on your financial security. Feel free to read other articles on our site for a good idea of what you can do to recession proof your finances. At financial resource helper, we work hard to make sure you have all of the information you need to access unclaimed funds, grants, and tips to put money back into your wallet.
