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Recession Watch 2022: What to Know About the Economic Downturn — and Its Impact on Your Money
By Sarah Hansen MONEY RESEARCH COLLECTIVE
More people searched for “recession” this month on Google than in any other time since 2004.
A familiar and frightening word is popping up everywhere again: recession.
More people searched for “recession” this month on Google than in any other time since 2004. Tesla CEO Elon Musk said recently he thinks a recession is “more likely than not” in the near term, and even rapper Cardi B has wondered aloud — er, on Twitter — whether one has officially started.
That worries about an economic recession have re-entered the zeitgeist isn’t too surprising. Prices are soaring, the housing market is showing signs of a downturn, and the Federal Reserve is raising rates to try to contain the damage. It’s no wonder that consumer confidence has plunged to its lowest level since 1980, and more than eight in 10 Americans report feeling pessimistic about the state of the economy.
Whether you’re still scarred from the Great Recession of 2007-2009 or don’t even fully know the meaning of recession, we’re here to provide answers to your frequently asked questions.
What is a recession?
A recession happens when the economy slows down for a period of time, usually after a period of economic growth. Conventional wisdom says a recession begins after two consecutive quarters of gross domestic product (GDP) decline, but the group that makes the official call — more on that later — doesn’t use that definition.
What causes a recession?
A number of economic factors can contribute to a recession. An analysis from the Congressional Research Service named an overheated economy (high inflation and uncharacteristically low unemployment), asset bubbles (like the dot-com bubble of the early 2000s and the housing bubble that preceded the 2008 recession), and unexpected economic shocks (like the oil shock of the 1970s) as some of the major precipitating factors that lead to recessions.
Are we in a recession?
Formally, no. A committee at the National Bureau of Economic Research (NBER) that focuses on business cycles makes the official determination about whether we’re in a recession or not.
On its website, the NBER defines a recession as a “significant decline in economic activity that is spread across the economy and lasts more than a few months.”
Are we headed for a recession soon?
It depends who you ask. Wall Street has already sounded the alarm: In a research note released Monday, analysts from Goldman Sachs said they now see the risk of a recession as “higher and more front-loaded” than they used to. They’re worried about what’s called a “hard landing,” which is what could happen if the Federal Reserve raises rates too quickly in an attempt to combat inflation and bring prices back down to Earth.
Goldman’s analysts pegged the probability of a recession within the next year at 30%, up from their previous forecast of 15%. Over the next two years, the analysts say there’s a roughly 50% chance of recession.
The Fed is watching how the economy is doing, too. A report released this week by economist Michael Kiley found that there’s a greater than 50% chance of a recession between now and next March — and a 67% chance of a recession over the next two years. In testimony before Congress on Wednesday, Fed Chair Jerome Powell acknowledged while the central bank is trying to avoid an economic downturn, a recession is “certainly a possibility.”
The White House, for its part, is painting a more optimistic picture. “It’s not inevitable,” President Joe Biden told the Associated Press recently. Treasury Secretary Janet Yellen reiterated that message this week (but she did acknowledge that “inflation is unacceptably high”).
How long do recessions last?
Recessions can last anywhere from a few months to a few years. The last recession, spurred by the pandemic, officially started in February 2020 and lasted just two months. The recession that began in December 2007 and ended in June 2009 was the longest since the Great Depression.
(FYI: There’s a difference between a recession and a depression. Depressions tend to be much more severe and much less frequent than recessions. They’re generally characterized by prolonged periods of high unemployment and bigger slowdowns in economic activity.)
What does a recession mean for you?
While recessions are regular occurrences in the cycles of the economy, they may mean some changes in your daily life. When people start to worry about a slowdown, they spend less. High inflation compounds that problem, because everyday essentials like gas and groceries are eating up a larger portion of consumer budgets.
Less consumer spending means that businesses might scale back to cut costs. Oftentimes, those cutbacks include eliminating jobs or restricting raises. You might notice prices in the supermarket start to fall.
If you’re looking to prepare for a recession, you may want to ready yourself to see your stock portfolio decline — but remember that making big changes to your investment plan during market downturns is never a good strategy. This i
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Sarah Hansen is a senior writer at Money covering all things personal finance. Previously, she covered economic policy and capital markets on the breaking news desk at Forbes. She completed her master's degree in business and economic reporting at New York University. Before becoming a journalist, Sarah worked as a paralegal specializing in corporate compliance.