How Long Will The Next Recession Last?
Frequent readers of this blog know that I do not believe anyone can predict the future. So it might come as a surprise that, based on the title of this post, I appear to be doing just that. Well, I’m not. I’m just sharing some historical data to put business cycles in perspective.
We are currently experiencing the longest period of economic expansion that the U.S. has ever seen. One hundred and twenty-one months and counting. We have surpassed what was previously the longest expansionary period (120 months) that began in March 1991 and ended during the dot-com bust in 2001. The third longest, 106 months, started way back in February 1961 and ended coincidentally during the last month of that decade. Right now people are understandably worried that after a record period of economic growth, the recession that will inevitably follow could be exceptionally severe.
Data from the National Bureau of Economic Research (NBER) suggest otherwise. The two economic contractions (aka recessions) that followed the previous longest expansions above were relatively short. After the 120-month expansion ending in March 2001, the subsequent contraction lasted only 18 months. The recession starting in December 1969 after its 106-month run was only 11 months long. In fact, every successive recession after the ten longest economic expansions since 1857 was significantly shorter than the period of growth it replaced.
What about the growth cycles that came after the above recessions? After the contraction ending in November 2001, the next expansion lasted for 73 months. In other words, that relatively short 18-month recession was sandwiched between a ten-year and a six-year period of economic growth. Similarly, the recession after the third-longest expansion (December 1969) was followed by 36 months of additional growth. Among the top ten longest expansions, in every case except one (in 1869) the subsequent growth period was longer than the in-between recession.
The average length of the recessions over the 33 business cycles since 1854 was 17.5 years, while the average length of the economic expansions over that same period was 38.7 years, more than twice as long. Since 1945 the numbers are even better: 11.1 years of contraction vs. 58.4 years of growth on average over eleven cycles. Historically the U.S. economy has demonstrated itself to be quite resilient.
No one has figured out how to eliminate the business cycle in favor of continuous growth. Perhaps it’s impossible. Regardless, the historical data tells us that the recession periods are typically much shorter than the expansions. No matter how difficult things may feel when we’re in the middle of one, the light at the end of the tunnel is usually not as far off as we might think.
Here’s a link to the NBER data: https://www.nber.org/cycles.html.