- Official NBER recession data says U.S. recessions have slowed over time.
- But some economists have argued that inaccurate historical economic data calls this claim into question.
- A variety of factors will prevent the US economy from falling further into recession.
One of the biggest questions in today’s economy is when the United States will enter a recession. Most Americans are crossing their fingers that it won’t happen anytime soon.
During a recession, many people lose their jobs — and those who don’t, worry about whether they’ll be next. Recessions often cause businesses to close Stock portfolios will fallAnd they can have a lasting impact on workers’ jobs and wages, even years after the recession has officially ended — it took many millennials longer to recover financially from the Great Recession.
So, over the past few years, when experts predicted Many Americans believe that the United States will soon enter a recession concern About their financial security. Although a recession is not yet in sight — some economic indicators remain strong — recession fears have not gone away.
Although it is not clear whether the US will experience a recession in the near future, the data National Bureau of Economic Research (NBER) — Responsible private, non-profit research group Tracking the start and end dates of the US recession — shows a promising trend for Americans, especially young people starting out in their careers: Recessions are becoming less common in America.
Between 1990 and 2023, the US economy spent 36 months in recession, and the latest US recession in 2020 lasted two months. NBER Defines The period of lag between the peak of economic activity and its lowest point – this period must include a „significant decline in economic activity” that usually lasts more than a few months.
Between 1960 and 1989, the economy was in recession for 59 months. The further back you go—the NBER data goes back to about 1850—the more common recessions.
But here things are a bit complicated.
The NBER’s recession data between roughly 1850 and 1950 is somewhere between flawed and unusable, George Selkin, an economist and senior fellow at the libertarian think tank Cato Institute, told Business Insider. He said the NBER’s pre-1914 recession data, in particular, was „very poor,” and that economic data collected after World War II was the only quality.
For example, few attempts were made early on to detect unemployment 1870sThe Bureau of Labor Statistics does not officially do so 1929.
This raises a series of questions: Are American recessions, in fact, much less common than they used to be? If so, who or what is responsible for this development?
And if not, what’s wrong? Above all, economists told BI, America’s economy is diversified and improving The economic data should have made the US more recession-proof than ever.
Recessions are no less common
The NBER may have worked with supplementary data, but was generally able to identify when the United States entered a recession.
However, alternative analyzes of historical economic data have found that the U.S. has not seen much of a decline in recession frequency over time, Selkin said. Selkin pointed out Research paper In 2005 Vanguard’s global chief economist, Joseph H. Published by Davis, it is the „most reliable” source of recession data he has seen.
Davis’ research placed too much emphasis on economic output and employment and too little on prices, which tells the wrong story, Selkin said. For example, when prices fell In the late 1800s, this did not necessarily mean a recession.
„What Davies and other economic historians show is that most, not all, of those periods were deflationary. Productivity gains.”
Ultimately, Davis’ research concluded that U.S. recessions may not be as historically common as previously thought—casting doubt on the hypothesis that recessions have changed so little over time.
Davis’s recession data only goes back to about 2000, Selkin says, adding more recent data points like the Great Recession could strengthen the paper’s findings.
The U.S. economy is more resilient because it is diversified
In some ways, the US economy is debatable And more stable than 100 years ago. Agriculture The stock decreases Economics is one of the primary reasons. In 1935, there were approx 6.8 million Farms in the United States, according to the U.S. Department of Agriculture. By 2023, 1.9 million.
„A bad harvest or drought period for one or two crops, that can give you a big slump,” Selkin said. „That doesn’t happen in a diversified manufacturing economy, and of course, a large part of GDP has nothing to do with the weather.”
A continuous transition from a manufacturing economy to a A service oriented one It could make the US even stronger, Satyam Pandey, chief US economist at S&P Global Ratings, told Business Insider.
„The most volatile is agriculture, then manufacturing and services are the most stable,” he said of economies focused on specific industries. „So a growing share of services means you’re going to have more sustainable economic growth.”
In addition, Selkin said will grow US government spending would make the economy more stable relative to GDP over the past century. In part, government spending does not fall during tough economic times.
Becoming energy-independent may also have helped. Before 2018, the US exported more oil than it imported First time Pandey said the largest increase in oil prices outside the US in 75 years would hit the economy hard. Today, the United States should be more insulated from such price shocks.
But if recessions are not much lower than they used to be, and if the aforementioned developments should make the economy more stable, there will be instability. Comes from?
Selkin doesn’t know what the explanation is, but he thinks so It is possible that the Federal Reserve, established in 1913, May be Some responsibility.
„The Fed tends to raise things at times and lower things at other times, and generally, it gets the directions right,” he said of the central bank’s interest rate policies. „There are plenty of reasons not to be complacent about the Fed’s performance, and to wonder whether it actually did what it set out to do when it was established.”
A central bank works to help the economy maintain maximum employment and stable prices. From 2022 onwards, The central bank has raised interest rates in an effort to reduce inflation, and it is pursuing a desired „soft landing” of low prices and a healthy labor market. Its principles may helped America avoids recession.
Better economic data and the ability to „learn from past mistakes” helped the central bank take better decisions, Pandey said.
Avoiding a recession isn’t the only indicator of a healthy economy
The longer the U.S. economy grows without a recession, the better it is for employment and Americans’ quality of life, Pandey said. But when measuring the stability of the U.S. economy, measuring the frequency of recessions may not be the best approach.
Even if a recession is technically over and the U.S. economy is starting to grow again, that doesn’t mean all is well. For example, the United States emerged from recession in 2009, but employment did not return to pre-recession levels. Until 2014.
That’s why economists should focus not only on the frequency of recessions, but also on the speed of economic recovery afterward, Selkin said.
Pandey said policymakers’ response to the pandemic recession — which included trillions in federal COVID-19 spending — shows they may have learned lessons from the sluggish recovery after the Great Recession.
To be sure, while a stable economy has its advantages, it is not the only indicator of a healthy economy. For example, Americans’ Quality of life Thanks in part to the fact that it has improved significantly over the past century will grow Economic and technological progress, although they have dealt with occasional recessions.
In the coming years and decades, any number of factors could plunge America into decline.
A long economic expansion can lift danger Pandey said that the economy is „running too hot” – and if policymakers don’t respond well, this could ultimately lay the groundwork for a recession. He added that development Compared to other sectors of the economy, the financial sector can pose risks if it is not properly regulated. Of course, unexpected global shocks to supply and demand — the pandemic is the most recent example — can wreak havoc.
For some Americans, the next recession may feel inevitable. But Pandey said that is not true.
„Economic expansions don’t die of old age,” he said. „Just because it’s been going on for a long time doesn’t mean you’re going to have a recession.”
Have you changed your spending or saving strategies over the past few years because you feared a recession was on the horizon? If so, contact this reporter [email protected].