When Will This Recession End?
According to the National Bureau of Economic Research, the current recession began in December of 2007. This would mean that the recession is nearly 14 months old at this point.
A recession is defined as being the reduction of a country's gross domestic product for at least two quarters (source: Wikipedia). This would mean that, by definition, a recession has to last at least six months in order to qualify as a recession in the first place.
Now, there is no way that a person can state with 100% certainty when a recession is going to end. It's just impossible.
Having said that, we can look at historical data to try and get an idea of how long this recession might last. There have been a number of recessions over the past 150 years - expansion and contraction is just a normal part of an economic cycle.
This is the second recession that we've gone through in the past decade. The first took place in the aftermath of 9/11 in 2001, and lasted into 2002.
Now, what has been the length of an average recession in the past? Let's take a look.
Since 1945, the average recession has lasted just 10.2 months.
If we include the Great Depression era, then that number jumps to 22 months.
If we go back to the beginning of 1900, then the average length of a recession settles in at 14.4 months.
Now, some of you might view the number since 1945 and assume that we will be exiting this current recession any day.
This current recession is, without a doubt, the most severe since the Great Depression. There hasn't been this type of widespread asset destruction since the late 20's / early 30's.
The "Great Depression" began on October 29th, 1929 and ended with the onset of World War II in 1939. There were a number of "recessions" that took place during this time, with the last one starting in 1937 and lasting through most of 1938.
Now, I'm not saying that we are going to have ten years worth of recessions, as I don't think that the current situation is as severe as it was in 1929.
Having said that - I also don't expect a miraculous V-shaped economic recovery either. It will take a long time to stabilize the global economy and inspire confidence in consumers once again. Banks aren't lending and people are reeling after watching their net worths decline by 30-40%+.
Why did I write this article?
I'm a bit tired of hearing people say that "the average recession lasts 14.4 months, so we should be just about done".
These people need to take into account the severity of this current downturn, and adjust their expectations accordingly.
My personal opinion? Our economy will begin to meaningfully recover in mid 2010. I believe that there are too many issues to be worked out in the meantime (banks, jobs, etc) for a recover to take place before then. Just my opinion though.. what's yours?
Filed under: The Economic Meltdown