The country is reopening, and many people (and the stock market) are feeling optimistic. But the economy has dipped into a recession due to the coronavirus pandemic. Naturally, that has many people wondering how long it'll take for the economy to return to normal.
To get to an answer, it's important to understand that recessions, or economic downturns, are a part of life and a natural economic cycle. Though America's current situation, a recession kicked-off by a viral pandemic, feels unprecedented, that doesn't mean that the economy won't make a relatively swift recovery.
While the last major downturn, the Great Recession, lasted a total of 18 months, the recovery took several years. Employment, for example, took 51 months to return to pre-recession levels, according to data from the Economic Policy Institue. But experts think that this recession could be much shorter, and the recovery could be fast, too. Here's why.
Recessions are typically defined as two straight quarters of negative GDP growth. While those numbers aren't official yet, many experts say that due to the severity of the current crisis, America is already in a recession. During the first quarter of 2020, GDP was -5%. The second quarter's figures, which won't be released for some time, may be grim. Former Fed Chair Janet Yellen says GDP could decline by 30%.
This recession is, in terms of raw data, worse than the one brought on by the financial crisis, says Scott Colbert, chief economist at Missouri-based Commerce Trust Company: "It's likely to be twice as bad as the Great Recession in terms of lost GDP."
But he also says this recession shouldn't last long as those in recent memory: "This will be the quickest recession."
"The average recession lasts 11 months," Colbert says. "This one will last maybe four months." But then, he adds, comes the economic recovery, and that generally takes longer.
Still, experts say that the length of a recession can often determine how long the recovery will take — and a quick recession can mean a quick recovery. "The shorter it is, the faster we'll come out," says Lincoln Merrihew, an independent business consultant out of the Boston area.
"The longer and deeper the recession is, the longer it takes to recover from it," Merrihew says. "What makes it hard right now is that the economy is not driven by financial issues, it's driven by restrictions [on] consumers' spending."
So, the degree to which people are willing and able to go back to work and to start spending money — by going out to eat, taking vacations, and paying for goods and services — will be the key factor in determining exactly how long it takes for the economy to fully recover.
Video by David Fang
Although many experts are bullish that the economy will emerge from the current recession and recover relatively quickly, their predictions are based on two assumptions.
- No second wave. An economic recovery relies on the U.S. being able to prevent or limit a second wave of the virus from this fall — something that many experts say is possible. Last week, Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases and a White House health advisor, said a second wave "could happen" but is "not inevitable."
- An available vaccine. America needs a vaccine, Colbert says, one that's not just developed but created, put into mass production, and distributed at an accessible price-point, so that people can actually get it if they want it. This is a point that Federal Reserve Chairman Jerome Powell has made, too. And though many companies are hard at work creating one, experts say it's unlikely that a safe, effective vaccine will be available until sometime next year.
Assuming that those two conditions play out favorably, the U.S. economy should be able to recover much more quickly than from a typical recession. Colbert says the average recovery usually takes around three years. But this recovery could take less than that, perhaps just a year or two, depending on when consumers return to their pre-crisis spending levels.
At that point, business activity, unemployment levels, and consumer spending should be roughly where they were earlier this year, before the viral outbreak.
As for what you can watch out for to try and gauge the recovery's progress later this year and into 2021, Jason Blackwell, a CFA and chief investment strategist at The Colony Group, says to keep an eye on indicators like unemployment numbers and consumer behavior. When people are out and resuming their normal activities, he says, that will be a sign that the country is on the path to recovery.
Look at "OpenTable reservations," he says, and "how many people are walking versus taking public transit." Already, he adds, some of those kinds of metrics are showing signs of improvement.
"It's been encouraging so far," says Blackwell.
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