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A foreclosure sign in front of a home in Miami Beach, Florida on January 22, 2009.
A foreclosure sign in front of a home in Miami Beach, Florida, on January 22, 2009.
Joe Raedle/Getty Images

Recessions, and the fear that another one is just around the corner, explained

“For most people, the effect of a recession is fear, not an actual loss. It’s fear of loss.”

The United States economy is on the brink of hitting its longest-lasting period of growth ever — but no one can quite get the idea of a coming recession out of their heads.

Economists now believe that another recession might arrive sooner rather than later — potentially before 2021 — and a growing group of analysts and experts have started to talk more about the possibility of a recession on the horizon. (Others are saying the situation isn’t so dire.) Earlier this month, the bond market flashed a signal that has typically been a predictor of economic downturns.

But beyond current predictions and economic indicators, there is also the simple fact that the Great Recession still looms large. It was a time during which the unemployment rate jumped to 10 percent and millions of people lost their homes and jobs. Many of the people reaching the point in their lives when they are about to make financially important decisions — buying a house, having children, or changing careers — came of age at the beginning of the crash.

According to a 2018 survey from the financial services company EY, millennials are becoming more confident in their economic stability than in the immediate aftermath of the financial crisis, but they’re more pessimistic than optimistic: 42 percent of millennials say the US economy is excellent or good, while 54 percent say it is fair or poor. And millennials still fall behind Gen Xers and baby boomers in terms of home ownership and having children.

Model homes sit vacant at a 750-home housing development where construction was halted in Rio Vista, California, on November 20, 2008.
Model homes sit vacant at a 750-home housing development where construction was halted in Rio Vista, California, on November 20, 2008.
Justin Sullivan/Getty Images

“My fiancée and I worry a lot about buying a house and then the value collapsing, so we might decide to rent rather than buy,” Scott Corbitt, a 23-year-old software developer from Utah, told me.

Emily, 29, a Washington resident who asked me not to use her last name, described starting college in 2008 when she was “aware that this timing could negatively impact my job search upon graduation.” She said that after graduating, she struggled to find salaried work in journalism and decided to make a career change.

“Many people my age who graduated college facing the 2008 recession are now fearing how another recession will impact the career changes they’re currently in the midst of — career changes that often come with financial risks,” she said.

She went to grad school, thus taking on more student debt, and at age 29 took an unpaid internship to launch her new career.

“For most people, the effect of a recession is fear, not an actual loss. It’s fear of loss,” said Betsey Stevenson, a former economic adviser to President Barack Obama who is now at the University of Michigan.

But just because it’s been a while since we’ve seen a recession doesn’t mean the US economy is about to take an enormous dive. An old adage among economists is that expansions don’t die of old age; something has to happen to cause them. There are some signs another one is becoming likelier, but fewer signs that we are on the brink of another enormous crash.

It’s also important to remember that the recession in the late 2000s was bad in ways most other recessions aren’t. It was the coupling of an economic slowdown with problems in the financial system that made the Great Recession particularly harmful.

Many people might start wondering what they should do to protect themselves just in case the next recession really is around the corner, but the reality is that recessions are so difficult to predict that there’s little you can do aside from keeping some savings around just in case. Recessions are about the whole economy, and we’re all in it together.

What is a recession?

A recession is basically what happens when the economy, instead of growing, contracts.

There are some more specific parameters out there. Some define recessions two consecutive quarters of negative GDP growth. The National Bureau of Economic Research has a broader definition and defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

The United States economy has seen dozens of cycles of expansions and recessions throughout history. In fact, recessions used to happen a lot more often than they do now, explained Richard Sylla, professor emeritus of economics at New York University, and since the late 20th century, expansions have become longer. The reason is that “we’re much less of an industrial economy,” Sylla said.

Prior to the Great Recession that began in late 2007, the previous one came in 2001. It lasted for eight months and was relatively mild — so mild, in fact, that we didn’t know that it was happening until it was basically over. And before that, the last recession in the US took place for eight months in 1990 and 1991.

US economic recessions, 1970-2019. Vox/Javier Zarracina

“It’s even possible that we’re in a recession right now, but of course we won’t know until six or nine months from now,” Sylla said.

Since about the 1980s — and with the exception of the late 2000s recession — business cycle fluctuations have generally been a lot less volatile. The ups haven’t been as up, and the downs haven’t been as down. It’s generally been referred to as the Great Moderation. That means that recessions aren’t as drastic, but periods of growth that make up for them aren’t as great, either.

George, a 34-year-old mergers and acquisitions associate at a law firm in Dallas who asked me not to use his last name, said he believes a recession is coming in the next 12 to 18 months and has changed his investments and career path. “Believing M&A will dry up soon, I am shifting toward more bankruptcy and restructuring litigation,” he said.

Why there’s more chatter about a recession right now

Recessions don’t just happen on their own, but instead “something has to happen that knocks the economy off course,” Stevenson explained.

The chatter of a coming recession now is about a confluence of factors that many economists believe make a recession more likely than less, not necessarily in the immediate future, but within the next couple of years. Federal Reserve Chair Jerome Powell at the start of the year said he doesn’t think a recession will hit in 2019, but he is concerned about slowing global growth in places such as China and Europe.

President Donald Trump’s trade frictions are also a risk to the economy, and the Fed could potentially become too aggressive in its interest rate hikes and accidentally do the economy harm. The partial government shutdown at the start of the year also had a negative impact on the economy, but that’s probably not enough to put the US in recession territory.

Taylor Kirkpartick, 12, holds a sign protesting the government shutdown in Ogden, Utah, on January 10, 2019.
Taylor Kirkpartick, 12, holds a sign protesting the government shutdown in Ogden, Utah, on January 10, 2019.
Natalie Behring/Getty Images

Economists also point to the “yield curve” as a sign an economic downturn is coming a wonky indicator of what’s to come. As Robert Samuelson at the Washington Post recently explained, the yield curve refers to the relationship between short-term and long-term interest rates, generally on Treasury notes. Normally, long-term interest rates are higher than short-term rates, because it’s riskier for investors to lend money for longer periods of time. When short-term rates get higher than long-term rates, the yield curve becomes “inverted,” and that’s often a bad indicator. Every US recession for the past 60 years was preceded by an inverted yield curve.

Last week, the yield curve inverted. As Vox’s Matt Yglesias laid out, that caused a stir among financial media and economists. It’s not a sign a recession is imminent, but it’s not a good thing, either:

But while the empirical link between past inversion events and recessions is real, it’s also clear if you look at the chart that there’s a time lag involved. That means there’s nothing automatic about this process. And while the theoretical link between recessions and inversions is real, there are also other sets of future financial situations — like a sudden spike in the value of the dollar — that could produce the same result.

There’s the fact that the current economic expansion has been going on for a really long time. If it lasts through the summer, it will be the longest in history.

“There is probably some reason to believe that it’s getting a little long in the tooth,” Bill Emmons, an economist at the Federal Reserve Bank of St. Louis, told me.

He recently examined the housing sector and found that some indicators (but not all) point to a slowdown there. “Housing is maybe the best example that there is this kind of inevitable building up of unsustainable practices,” he said.

Tim Lyons, a 37-year-old estate planning attorney in Los Angeles, told me in an email that the real estate agents he works with say the housing market is cooling. That’s put him on edge. “My husband and I have thought of putting some retirement money into cash, but timing the market is not really a smart long-term investment strategy,” he wrote.

The stock market can also signal an impending recession, but that’s not always the case. The market took a dive in late 2018, igniting fears about an economic downturn — search interest in “recession” was higher during the week of December 16 than in the past five years, according to data from Google News Lab.

The New York Stock Exchange (NYSE) in the Financial District of in New York City, on March 20, 2019.
The New York Stock Exchange (NYSE) in the Financial District of in New York City, on March 20, 2019.
Drew Angerer/Getty Images

But if that drop had been a predictor of a recession, it would probably already be here. “The stock market has forecast nine out of the last five recessions,” Sylla joked.

Marc Goldwein from the Committee for a Responsible Federal Budget, a bipartisan group that advocates for fiscal responsibility, said he also believes certain other conditions are making anxieties higher.

The Federal Reserve can usually cut interest rates in the event of an economic downturn, but because right now they’re relatively low, the Federal Reserve has less room to maneuver. And the US already has a lot of debt, meaning there will likely be more political and economic resistance to government spending if a recession does hit. “In many ways, the recent tax cuts and spending increases have actually made it even harder for us to fight the next recession,” Goldwein said.

It’s okay to be a little nervous about the economy

The US economy looks to be in decent shape right now, but at some point, a recession is probably going to happen.

What’s more, even increasing chatter about a recession can make it more likely and turn it into a sort of “self-fulfilling prophecy,” Stevenson said. If people start to worry about an economic downturn, consumers start saving their money instead of spending, and businesses put investment decisions off, making the likelihood of things going south greater.

There are also the residual effects of the last recession and lingering anxieties among people who remember how bad that was. “In the shadow of the Great Recession, we have to be a little cautious in thinking,” Simmons said.

During recessions, most people don’t lose their jobs — even in the Great Recession, unemployment peaked at 10 percent, but that means 90 percent of people in the labor market had jobs. But bad economic times make people more afraid to change jobs and take economic risks.

Pew Research Center in a recent survey found that 54 percent of Americans believe the US economy in 30 years will be weaker than it is today, while 38 percent say it will be stronger. When broken down by age, 49 percent of people ages 18-29, 57 percent of people ages 30-49, 52 percent of people ages 50-64, and 55 percent of people ages 65 and older think the economy will be weaker by 2050. In other words, older people are actually more pessimistic about long-term economic growth than younger people are.

A Morning Consult report 10 years after the financial crisis found that 52 percent of Americans say the Great Recession impacts their personal finances, and 65 percent say they’re concerned about another recession happening in the near future.

“Everybody treads water for a while,” Stevenson said. “If we were to slip into a recession, the outcome that affects most people is the fact that they don’t get raises, they don’t change jobs.”

Flags along the New York Stock Exchange are reflected in the window of a closed Federal Hall during the partial government shutdown on January 02, 2019 in New York City.
Flags along the New York Stock Exchange are reflected in the window of a closed Federal Hall during the partial government shutdown on January 02, 2019 in New York City.
Spencer Platt/Getty Images

Dana Kurzner, a 22-year-old student from Massachusetts, told me she’s “terrified” that she might be “about to graduate into a market on the verge of another bust.” She continued, “I already grew up in a family that suffered due to hardships incurred by 2008’s recession and I feel so let down by how our economy [and] politics seemed to give the majority of the benefits of the economy’s recovery to the rich.”

Perhaps the scariest part about recessions is that there’s not much you, personally, can do about them. However, it’s great to have savings so that if you do lose your job, you’ve got money to fall back on.

“If somebody’s worried about a recession, the questions that should raise are do they have a big enough emergency fund, and do they have the right investment mix?” Zach Teutsch, a financial adviser at Values Added Financial who has written about the importance of emergency funds for Vox in the past, said. He said people should handle their money and investments “on the basis of the idea that there is likely to be a recession at some point.”

But preparing for a downturn and saving is often easier said than done. Only 40 percent of Americans have enough savings to cover a $1,000 unexpected expense, according to personal finance website Bankrate.

If a recession does happen and is accompanied by a drop in the stock market, you probably shouldn’t look at your 401(k) for a while — and unless you really need it, you shouldn’t take money out of it either. In fact, when it comes to investing, the best advice in a down market is often to buy.

There’s a famous quote from investor Warren Buffett along those lines: “Be fearful when others are greedy and greedy when others are fearful.”

Of course, being able to buy into the stock market in a downturn means you have to have money to spend — which many people don’t.


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