How Long Do Recessions Last? A Look at the Past for Clues

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After a global pandemic, soaring home prices and bidding wars, raging-high inflation and recent interest rate hikes, it seems we’ve weathered enough economic drama for a lifetime.

And yet, things are still getting funkier. Signs of recessions are mounting, sending consumer confidence plummeting to record lows. More than 60% of CEOs expect a recession in the next 12 to 18 months.

For homeowners, just the word recession gives off especially ominous vibes, as so much of your wealth may be tied up in just one asset — your home.

And for those who have been planning to sell a home, or those trying to buy, recession adds a lot of doubt. Should you sit pretty and watch things play out? If you do, how long could you be waiting?

To find out how long a recession may last, we dug into data from the complete history of economic recessions. Buckle up.

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What is considered a recession?

First thing’s first: What exactly is a recession?

There isn’t one official definition of recession. The National Bureau of Economic Research (NBER) is responsible for defining when recessions officially start and end. They use factors like increased unemployment and decreased manufacturing to determine when we’ve hit a slump, and they use this general definition of recession to make their determination:

However, there’s a more technical definition that tends to be used most often in the media:

If you’re a little foggy on GDP, don’t sweat it. GDP is all the goods and services the economy produces in a given period. It’s often measured in terms of economic quarters, which are periods of three months each. When GDP is negative, the country is experiencing a decline in economic activity.

So, putting it all together in the technical definition above, a recession can be defined as a period of six months or more in which the economy isn’t keeping pace with previous rates of growth.

What causes a recession?

All sorts of things can trigger a recession — a global pandemic, anti-inflationary interest hikes, energy crises, mass loan default, and explosive asset bubbles, brought on by investors who, in a state of exuberance, funnel hysterical amounts of cash into assets. Take, for example, the railroad bubble post-Civil War. Or, the dot-com bubble at the turn of the century.

From a bird’s eye view, recessions are just an apparently natural phase in an economy’s business cycle — though, down on Earth, they’re undoubtedly painful.

But why do market downturns happen at all? To understand why, consider how the economy works during periods of economic growth.

Life during expansion

During expansion, the sun’s shining and the economy’s output is growing, jobs are easy to come by, productivity is high and there’s an optimistic feeling in the air.

At a granular level, things are just as good:

• Credit and financing: Credit and loans are fairly easy to come by and have affordable interest rates.
• Business: People are feeling comfortable with risk, so businesses open, expand, and find investor interest.
• GDP: As business picks up, lots of goods and services are added to the economy.
• Consumer confidence: Consumers see that business is booming and enjoy an abundance of goods and services.
• Employment: Profitable businesses can expand to hire more employees. Joblessness is at a low, and average incomes rise.

As long as things keep going smoothly, then growth keeps on keeping on, with more and more value added to the economy. Unfortunately, so far, there’s no such thing as a permanent period of growth. At some point, something breaks. Sometimes, high demand reaches an unstainable point, and inflation soars.

When that happens, the Fed steps in to increase interest rates and make it more difficult to borrow. This cools the economy down and — you guessed it — triggers recession.

Life during recession

The economy has been flying too close to the sun. As things heat up, some sort of shock hits, and things quickly start to fall apart:

• Credit and financing: Credit becomes harder to come by or more expensive — often by design, as the Fed raises interest rates to keep inflation in check.
• Business: There’s a lot of pressure introduced when financing becomes more restricted. Businesses stop expanding and may even go under. Investors are feeling bearish and stocks drop.
• GDP: As money runs tight and businesses struggle, output of goods and services declines.
• Consumer confidence: When consumers walk into stores and feel the scarcity of less options, or turn on the news and hear about looming economic decline, they start to feel anxious about the economy. They stop spending as much and focus on saving.
• Income and employment: As businesses make less money or go under, they reduce staffing. Joblessness increases, average income decreases. It’s harder to find a job.

Are we going into a recession?

Historically, all periods of economic expansion lead to recessions. In that sense, the question isn’t whether, but when — and how badly it will hurt homeowners — when recession does strike.

Recessions are notoriously difficult to predict in advance. But here’s an unpleasant fact: Some economists believe that we might already be in a recession.

To see why, remember that a popular definition of recession is at least two consecutive quarters of negative GDP growth.

So far in 2022, the first quarter’s real GDP declined 1.5%, and the second quarter’s GDP fell 0.6%*. As the technical definition cites, two consecutive quarters of negative growth in GDP is a strong recession signal.

Politico Chief Economic Correspondent Ben White points out that “economists, politicians, Wall Street traders, pretty much everyone else” is growing increasingly nervous about the possibility of significant downturns in 2023. He cites the recent Fed interest rate hikes as a key reason why.

How often do recessions happen?

Recessions happen fairly often. In fact, you’ve likely already lived through a few.

There have been 14 U.S. economic recessions since the Great Depression ended in 1933. In the 21st century alone we’ve seen three recessions — the 2001 recession, the Great Recession, and the 2020 recession — spaced just under nine years apart on average.

How long do recessions last?

Compared to periods of economic expansion, recessions are relatively brief. Since World War II, recessions have lasted about 10 months each, according to NBER data.

Let’s look back at some of the most noteworthy recessions in economic history for insight into what causes recessions and how long they usually last.

Duration of 10 most influential U.S. recessions

The Pandemic Recession: February 2020 to April 2020
Duration: 2 months
Cause: Following the onset of COVID-19, lockdowns, and declines in manufacturing and consumer spending sent economic activity into a sharp, dramatic plunge.

The Great Recession: December 2007 to June 2009
Duration: 18 months
Cause: Home foreclosures jumped 79% in one year as a result of high rates of default on risky home loans. This crash, called the subprime mortgage collapse, sent home values sharply down and spurred a financial institution crisis and major stock market loss.

The 2001 Recession: March to November 2001
Duration: 8 months
Cause: First, the dot-com bubble burst at the start of the century took a huge toll on investors while an artificially inflated tech sector crashed. Shortly after, the September 11 terrorist attacks brought more damage to an already struggling economy.

Early 1990s Recession: July 1990 to March 1991
Duration: 8 months
Cause: A financial collapse called the Savings and Loan Crisis brought about a mortgage market crash. The resulting record lows in home construction combined with rocketing oil prices to create a stagnant economy and increase unemployment.

The Double Dip Recession: January to July 1980, July 1981 to November 1982 
Duration: 6 months recession, followed shortly by another 16 months recession
Cause: These two recessions are often taken together to constitute one long, deep period of recession. It was brought on by anti-inflation interest hikes in combination with an energy crisis that saw a surge in oil prices.

Oil Embargo Recession: November 1973 to March 1975
Duration: 16 months
Cause: Also called the “Stagflation” Recession, this recession saw inflation remain high while the economy plummeted. It started with an oil embargo that led to soaring gasoline prices, leading to declines in consumer spending. Meanwhile, interest hikes designed to halt inflation led to a stagnant economy and joblessness.

Recession of 1969–1970: December 1969 to November 1970
Duration: 11 months
Cause: To combat a period of surging inflation, the Fed raised interest rates. The recession that resulted was relatively mild and worked as intended to cool down expansion while minimizing damage.

The Great Depression: August 1929 to March 1933
Duration: 43 months
Cause: The Great Depression was caused by the 1929 crash of the stock market, banking panics, interest rate hikes in the U.S., and tariff-fueled collapses in trade.

The 1920–1921 Depression: January 1920 to July 1921
Duration: 18 months
Cause: At the end of World War I, the country’s wartime production push and low interest led to rapid economic expansion and soaring inflation in peacetime. It all came to an abrupt end when the Fed’s intervention sent interest rates up to 7%. Factories closed and joblessness soared while wages plummeted.

The Long Depression: October 1873 to March 1879
Duration: 65 months
Cause: Economic turbulence in Europe and rapid railroad expansion fueled a speculative bubble. This led to the failure of investment banking firm Jay Cooke & Company, the largest bank in the United States.

Who is impacted the most during a recession?

Recession takes a toll on just about everybody.

A study from the American Academy of Political and Social Studies found that the Great Recession led to declines in the wealth of American families, regardless of their socioeconomic status.

Notably, the study found that a quarter of all American families lost at least 75% of their wealth between 2007 and 2011. More than half of families lost at least 25% of their wealth.

The study points out that while higher wealth families lost a higher dollar amount of money, families with socioeconomic advantages tend to fare better. But families with a lower income and less in savings before the start of the recession tend to have a harder time staying afloat, losing a higher percentage of their wealth.

For example, new homeowners, especially those who are still early on in their careers, have limited cash savings, or who don’t yet have much home equity, could feel the heat.

How long could the next recession last?

It’s hard to say for sure.

The average length of a recession since World War II has been 10 months. But take that number only for what it’s worth; Bloomberg journalist Rich Miller quips that, like unhappy families, each recession is painful in its own way.

Consider the 2020 recession — it was tremendously steep and destructive, but it was also the shortest in history, totaling two months of economic decline. For comparison, the preceding Great Recession, which was linked to a housing market meltdown related to subprime mortgage lending, lasted a stark 18 months.

Since no recession is strictly the same, it’s hard to make predictions about how long the next will stick around for. But some analysts point to the current crisis of rising inflation as a bad portent. One stance is that if interest-rate hikes push the economy beyond what it can withstand, the result could be a long, deep recession.

How can I prepare for a recession?

Whether or not recession is here yet, one thing’s for sure: Building up financial stability and having a long-term financial plan are key to surviving volatile market conditions without getting burnt. Here’s how:

1. Adjust your spending habits

Even if you’re already living below your means, consider what you could cut back on in order to free up funds. Learning to live on less — and save the difference — is key to building up financial resilience, which becomes all the more important during a recession.

2. Pay down debt

If you’re carrying high-interest debt, such as a credit card balance or a personal loan, prioritize aggressively paying it down. It’s wise to wipe out debt when you’re in calm waters to make it easier to stay afloat should hard financial times strike.

3. Buffer emergency savings

You’ll sleep easier in a volatile market if your emergency fund is flush. Aim to keep at least three to six months’ worth of expenses socked away in an interest-bearing savings account. If you need to cut back to direct more money toward that goal, it’s best to do it while the sun’s still shining.

Also, make sure that your emergency fund isn’t invested. If you have money that you may need in a pinch tied up in stocks, attempting to get to the cash in an emergency could bring a lot of pain — all when you can’t afford to be hurt.

4. Increase your income

Jobs can be hard to come by in a recession, so set yourself up for success in case worst comes to worst. Update your resume, ask for a promotion, and network in your industry.

In addition, consider diversifying your streams of income. Can you pick up a side gig? Do some freelance work?

5. Review your financial plan

Financial loss is a serious risk for investors during a recession, especially those nearing retirement. Don’t wait to ensure your financial plan includes a strategy for rebalancing your portfolio for retirement. It’s a good idea to work with a financial advisor to ensure you’re preserving wealth.

For early investors, it may not be the best time to check how your 401(k) is faring. That said, these market lows could actually benefit you long-term. Keep investing through retirement accounts. In fact, consider upping how much you invest out of each paycheck, if doing so won’t overextend your budget.

Historically, the market always goes back up — which means the last thing you want to do is jump ship in a state of anxiety.

Tackle a recession with preparation, patience, and prudence

Whether recession is on its way, far in the future, or already upon us, here’s what you can bank on. Market highs and lows are a fact of life, so building up your savings and remaining forward-thinking in your financial planning is key.

You can’t control future market conditions, but you can intentionally manage your money now. Cut back where you can, seek alternate streams of income, stockpile savings, and cut debt out of your life ASAP. The more solid the foundation you build pre-recession, the easier it’ll be to weather the storm — and benefit when the market picks back up.

*Editor’s note: This story has been updated to reflect a change in the second quarter GDP. The U.S. Bureau of Economic Analysis revised its July advanced estimate. In an Aug. 25 updated data release, the final GDP figure was reported to be a decline of 0.6% rather than 0.9%.

Header Image Source: (Scott Szarapka / Unsplash)