The labor market is booming — job creation averaged 176,000 per month in 2019, and unemployment continues to hover near a half-century low — and the economy is growing at a slow but steady pace. Last year, the nation expanded at an annualized rate of 2.3 percent.
Still, while expansions don’t die of old age, growth also doesn’t last forever, and eventually, the economy will enter a downturn.
To be loosely defined as a recession, a country needs two consecutive quarters of declines in real GDP, the broadest gauge of growth. The National Bureau of Economic Research, a private organization of economists, describes it as “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.”
On average, recessions since the end of World War II have ranged anywhere from six months to 16 months, for an average of about 11 months, according to NBER data. At 18 months, the 2008 financial crisis was an anomaly. (Not including it, the average falls to about 10.4 months). The Great Depression, which began in 1929 and ended in 1933, was a staggering 45 months long.
The three most common causes of a downturn include overheating, an asset bubble and an economic shock, like surging gas prices in 1979 in the wake of the Iranian financial crisis.
Recent market volatility, combined with record highs for the three major indexes, has raised questions about whether the economy is currently in a bubble.
“Unfortunately, it is difficult to accurately identify bubbles and to predict when they will cause problems for the broader economy,” Marc Labonte, a specialist in macroeconomic policy at the Congressional Research Service, wrote in a 2019 paper. “Because stock prices are volatile, large increases and declines over, say, 12-month periods are not uncommon.”