Investing

What you can expect to happen during a typical economic recession

Anna-Louise Jackson@aljax7

Recessions are a normal part of the economic cycle, and yet, they can feel anything but normal when you're in the thick of one.

More than 10 years since the Great Recession of 2007-2009 ended, the U.S. economy is now in the midst of its longest-ever expansion. But people are increasingly bracing for the next downturn, and more than 70% of economists predict a recession will begin by the end of 2021.

For more than 65 million Americans between the ages of 15 and 29, the next recession will likely be their first since entering the workforce. Here's what to expect.

What a 'typical' recession looks like

A recession occurs when there's a significant decline in economic activity as consumers and businesses spend less money. Many economists define a recession as two consecutive quarters of declines in gross domestic product (GDP), which is the sum of the value of all goods and services produced in an economy.

Another widely recognized recession indicator is unemployment. When there's a rapid spike in unemployment compared to recent lows, "the economy is effectively always in a recession," according to research from The Brookings Institution.

In the past 100 years, there have been 17 recessions, each lasting anywhere from six months to about 3.5 years, according to figures from the National Bureau of Economic Research. That works out to a recession roughly every six years, meaning that it's been longer than average since the economy experienced such a slowdown.

Here's how past recessions stack up, in terms of their length and peak unemployment rate.

Graphic preview
Comparing past recessions
While the most recent recession was the longest since the Great Depression, a shorter one in the early '80s saw higher unemployment rates.
Recession length and peak unemployment rate since 1948
Social chart title
Note: In some cases, the unemployment rate climbed higher after the recession officially ended.
kiersten schmidt/grow National Bureau of Economic Research (recession duration); FactSet (unemployment rate)

The next recession could look much different than the last one. The Great Recession was the worst, and longest lasting, since the Great Depression that began in 1929. And while it's difficult to predict how severe future recessions will be, it's also unrealistic to assume they will mimic past ones — especially because causes can vary, as does the impact on various industries.

How a recession could affect your job

Nearly half of Americans live paycheck to paycheck, according to a recent survey conducted by GoBankingRates. So understandably, job security is a primary concern in a recession.

Here's how past recessions have affected workers:

  • The unemployment rate — or the percentage of the workforce that's jobless — increases because companies reduce headcount, and either slow or stop hiring. In fact, the unemployment rate has a perfect track record for predicting recessions, which is why it's one of three signs professional investors watch closely.
  • Some companies reduce the number of hours that employees work to cut costs amid lower demand for their products or services.
  • The number of people working part-time increases, driven not by choice but rather because they can't find full-time work or their employer has cut back on hours.

Even in the event of a downturn, there are ways to help recession-proof your career, according to experts, including: diversifying your skills, expanding your network, joining professional groups or associations, and looking for opportunities to transition to a different role or industry.

How a recession could impact your wallet

If a recession does affect your job, your spending habits will likely change. Fear of a recession can also prompt people to cut back, out of concern or uncertainty.

Some experts have warned that because people are worrying about the next recession again, fear itself could fuel the next downturn. Even so, consumer confidence — how Americans fell about their personal financial situation and the health of the U.S. economy — hasn't taken a major hit yet.

Still, uncertainty is inherent to recessions. That's why experts recommend planning ahead now to help you stay on track in the event the economy gets bumpy. To recession-proof your finances, it can help to take steps like building up a cash emergency fund, getting spending and debt under control, and diversifying your income by picking up a side hustle.

During past recessions, the Federal Reserve has cut interest rates to try to stimulate economic growth by making it cheaper for consumers and businesses to borrow money. At the same time, you'll earn less interest on your savings account. As interest rates fall, check if it makes sense to refinance your debt, including mortgages, auto loans, and credit cards.

VIDEO1:5701:57
The difference between a bear market, a recession, and a correction

How your portfolio could fare during a recession

Like the unemployment rate, many professional investors monitor the major stock indexes for signs we're entering a bear market as a possible recession indicator.

The past decade has been one of the best ever for investors, with the S&P 500 surging more than 300% since 2009. But just as the economy goes through cycles, so does the stock market. In a bear market, major indexes like the S&P 500 — the benchmark for the U.S. stock market — fall more than 20% from a recent high.

The last bear market coincided with the Great Recession, and the S&P 500 fell 57% between October 2007 and March 2009. But that's not always the case; in fact, there have been 13 bear markets in the S&P 500 since 1945, and only eight of them overlapped with some part of a recession.

Even if the stock market doesn't enter a bear market, the value of your portfolio likely will slump, as professional investors try to forecast the severity of recession-related declines. Many investors flock to bonds during periods of economic uncertainty because these assets offer lower risks and more predictable returns — but bonds are a smart investment to have in your portfolio at any time. Work with a financial advisor or follow popular guidelines based on your age to figure out the right asset mix.

While recessions can be scary, it's important to not let fear of when the next one will hit completely sidetrack your career or financial decisions. Americans are likely to live through a handful of recessions during their lifetime, and these downturns can actually be a good opportunity for young investors to buy stocks at lower prices.

More from Grow:

Get the Grow Newsletter Every Week
The best money advice you never got, delivered to your inbox weekly.
The best money advice you never got, delivered to your inbox weekly.
 

acorns+cnbcacorns cnbc

Join Acorns

GET STARTED

About Us

Learn More

Follow Us

All investments involve risk, including loss of principal. The contents presented herein are provided for general investment education and informational purposes only and do not constitute an offer to sell or a solicitation to buy any specific securities or engage in any particular investment strategy. Acorns is not engaged in rendering any tax, legal, or accounting advice. Please consult with a qualified professional for this type of advice.

Any references to past performance, regarding financial markets or otherwise, do not indicate or guarantee future results. Forward-looking statements, including without limitations investment outcomes and projections, are hypothetical and educational in nature. The results of any hypothetical projections can and may differ from actual investment results had the strategies been deployed in actual securities accounts. It is not possible to invest directly in an index.

Advisory services offered by Acorns Advisers, LLC (“Acorns Advisers”), an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Brokerage and custody services are provided to clients of Acorns Advisers by Acorns Securities, LLC (“Acorns Securities”), a broker-dealer registered with the SEC and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Acorns Pay, LLC (“Acorns Pay”) manages Acorns’s demand deposit and other banking products in partnership with Lincoln Savings Bank, a bank chartered under the laws of Iowa and member FDIC. Acorns Advisers, Acorns Securities, and Acorns Pay are subsidiaries of Acorns Grow Incorporated (collectively “Acorns”). “Acorns,” the Acorns logo and “Invest the Change” are registered trademarks of Acorns Grow Incorporated. Copyright © 2019 Acorns and/or its affiliates.

NBC Universal and Comcast Ventures are investors in Acorns Grow Incorporated.