As of the March 19 close, as CNBC reports, the Dow Jones Industrial Average had fallen 13.36% for the week, putting it on track for the largest weekly percentage loss since the financial crisis.
While all signs point to a coming recession, it is the Business Cycle Dating Committee within the National Bureau of Economic Research (NBER) which has the responsibility of declaring when it starts and when it ends.
A global recession makes this doubly difficult. While the world economy was stable and growing around the start of the year, the unexpected virus is causing major economic disruptions across the globe, increasing the risk of this occurring.
What is a Recession?
A recession is a period in the business cycle when a general decline occurs among economic activities combined with a decrease in consumer spending and incomes, rising unemployment and business failures, and falling stock markets.
While it is a normal occurrence, it’s been over a decade since the U.S. economy has suffered through one.
A recession is usually declared when the GDP of a country or its gross domestic product is in negative growth for two consecutive quarters, although it can be called based on other economic indicators if things are deteriorating quickly.
How Long Do Recessions Usually Last?
A recession can last from just a few months to several years before things change and economic growth picks up once again.
The longest recessions since the mid-19th-century lasted for over five years, between October 1873 and March 1879, while the shortest was just six months, occurring during the first half of 1980.
Since the 1930s Great Depression, there hasn’t been one that’s lasted over 20 months, with the period from December 2007 through June 2009 the longest.
The first thing that usually happens before a recession is officially called is a sharp decline in the stock market.
The Economic Damage Caused By a Recession
With corporate earnings shrinking and consumer spending declining, businesses often don’t have the financial resources to get through these challenging times and are forced to lay off workers and file for bankruptcy.
Unemployment and a lack of jobs can lead to unpaid mortgage payments, home foreclosures, and more consumer spending cutbacks.
That negative loop can lead to wide-ranging economic distress.
Has a Recession Begun?
There hasn’t been a recession since the financial crisis. However, since the outbreak of the coronavirus, it is highly likely the economy will derail.
The epidemic that began in late January has been spreading quickly across the globe and will cause an economic shock to supply and demand.
Consumer spending is declining and will likely drop even more with an increasing number of people ordered to stay home or choosing to do so, avoiding activities like dining out, shopping and travel.
Businesses are reducing or suspending operations to help prevent the spread of the infection as well as due to declining demand.
While economists are currently assessing the impact the virus will have on the economy, it’s not easy. Projections are changing quickly and vary significantly.
Some say that economic activity should start to normalize in the third quarter of 2020 and then rebound robustly in the final quarter of the year. By the time 2029 rolls around growth is expected to bounce back, assisted by the Federal Reserves’ more accommodative stance, by around 2.5 percent.