With a flurry of news stories reporting on job cuts and organizational upheaval within the banking industry, apprehensions about an impending recession are escalating.
Many are left pondering the duration of a potential economic slump.
Insights may be gleaned by examining the duration of previous financial downturns.
The Business Cycle Dating Committee, a group of economists at the National Bureau of Economic Research (NBER), is responsible for identifying the official commencement and cessation of a recession.
According to the committee, a recession is defined as a substantial decline in economic activity spanning various sectors, persisting for multiple months or longer.
“Expansion is the normal state of the economy,” the committee notes on the NBER site.
“Most recessions are brief.”
The committee verified in 2021 that the economic slump brought on by the pandemic persisted for a mere two months, spanning from February 2020 to April 2020, resulting in the briefest recession ever witnessed in the United States.
This financial downturn was truncated by a sizeable stimulus package implemented by the government.
However, it is uncertain whether the next economic deceleration will be as fleeting.
The Federal Reserve economists have forewarned that a slight economic slump is anticipated to occur later in the year, as indicated by the minutes of the Fed’s March 21-22 gathering.
The forecast entails a recuperation taking place within the subsequent two years.
Attributing the forthcoming economic predicament to the recent chaos within the banking industry, the economists estimate that the distress is expected to persist for an extended period.
In the minutes, staff noted that historical recessions linked to financial market troubles are typically more severe and enduring than ordinary recessions.
The 2008 financial crisis, the lengthiest recession in recent decades, dragged on for a duration of 18 months.
The current economic climate is complicated due to deliberate efforts by the Federal Reserve to curb economic growth to address rising inflation concerns, noted Preston Caldwell, the chief U.S. economist at Morningstar.
Typically, lowering interest rates stimulates economic revival during slumps.
However, Caldwell anticipates that the central bank will effectively regulate inflation by the end of 2023, and consequently, begin reducing rates in 2024, signaling the commencement of economic recuperation.
Preparing for a potential downturn, Cathy Curtis, the founder and CEO of Curtis Financial Planning based in Oakland, California, advises individuals to update their resumes to remain ready to explore new employment opportunities in case of job loss.
Curtis, who is also a member of the CNBC Financial Advisor Council, recommends sustaining professional connections to keep up with open job vacancies or referrals.
As per experts, having a robust emergency savings account covering expenses for at least three to twelve months is one of the most effective measures to avoid going into debt during an economic slump.
