Recessions: 8 Things You Need To Know

…A recession is the scariest creature in the average investor’s closet of anxieties…because they can mean lower home prices, lower stock prices and, of course, higher unemployment [but] if you’re prepared for the next one, there will be plenty of opportunities when that downturn ends. [That being said,] the more you know about recessions, the better, so here are 8 must-know facts about them.

This version of the original article by Dan Burrows and John Waggoner (kiplinger.com) has been edited [ ] and abridged (…) to provide you with a faster and easier read. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

1. Why Are Recessions Called ‘Recessions’?
   • …”Depression” is used to mean an extremely sharp and intractable recession, but there is no formal definition of the term in economics…
2. What Constitutes an Official Recession?
   • …Two (2) quarters of consecutive GDP contraction is the standard shorthand for a recession…
3. How Long Do Recessions Typically Last?
   • …The longest post-WWII recession was the Great Recession, which lasted 18 months while the shortest was the two-month Pandemic Recession. Since World War II, recessions have lasted an average of 11.1 months…
4. How Often Do Recessions Happen?
   • … Since World War II a recession has occurred, on average, every 58.4 months, or almost 5 years….
5. When Was the Harshest Recession?
   • …The recession of 1873 -1877, began with the failure of Jay Cooke & Company, a major bank, which caused a chain reaction of bank failures across the country and the collapse of a bubble in railroad stocks. The New York Stock Exchange shut down for 10 days in response…
6. What’s the Worst Effect of a Recession?
   • An old economist joke is that a recession is when someone else loses their job, and a depression is when you lose your job…
7. What Is the Best Early Warning Sign of an Impending Recession?
   • An inverted yield curve – when short-term government securities, such as the 3-month Treasury bill, yield more than the 10-year Treasury bond – has been a solid predictor of economic downturns occurring before each recession in the past 50 years with just one false signal. The index of leading economic indicators – a composite of 10 indicators including the stock market and consumer confidence – is useful for those who want a broader view of the economic picture.
8. Does the Federal Reserve Cause Recessions?
   • …The main cure for soaring inflation is higher interest rates, which slows the economy… [and, if the Fed hikes interest rates too high to end inflation it could put the brakes on the economy resulting in a recession].