If something’s going to be painful, it’s easier to bear if it’s of short duration, at least in some contexts.
Economic recessions generally follow that rule, but not always. A short, deep recession can leave a lot of scars, as the pandemic one did. Long and relatively deep recessions are the worst ones — the Great Depression and the Great Recession, for example.
It seems like many surveys of business executives and economists think there’s a high probability of recession in 2023.
Consider two recent polls: New research by Mercer showed 87% of CFOs and CEOs believe the U.S. is already entering a recession, and half believe it will occur in the medium term. Meanwhile, slightly more than half of the 60 surveyed members of the National Association for Business Economics (NABE) peg the possibility of a recession over the next year at 50% or greater.
Additionally the Conference Board’s January 12 CEO survey found that a recession or downturn is the top external concern of chief executives for 2023. A majority of U.S. CEOs expect the economy won’t pick back up until late 2023 or mid-2024.
How long and deep might the recession be? One of the more pessimistic projections is from the Conference Board, which predicts three straight quarters of negative GDP growth (-0.6%, -1.7%, -0.5%) to start the year. In the fourth quarter, it projects a small rebound — a 1.1% rise in GDP.
“We … expect that the U.S. economy will fall into recession soon,” stated the think tank in a January 12 release. “However, this downturn will be relatively mild and brief, and growth should rebound in 2024 as inflation ebbs further and the Fed begins to loosen monetary policy.”
There don’t seem to be any projections of a long and deep decline in economic activity. Thirty-three recessions have occurred since 1854, according to the National Bureau of Economic Research, which defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in GDP, real income, employment, industrial production, and wholesale-retail sales.”
Since World War II, the average recession has lasted about 11 months — or nearly three calendar quarters. But since 1979, we’ve had six recessions that surpassed that average, according to a GDP-based recession indicator index, developed by James Hamilton of the University of California. (See chart.)
With the continued strength of some sectors of the economy, a protracted recession doesn’t seem likely, but never say never. This recession might not fit any past patterns, including its shape — on a graph of GDP growth, we might not see a “V,” “U,” “W,” or “L” recession.
Indeed, we may not see a recession at all. Projections from the Philadelphia Fed Survey of Forecasters, Goldman Sachs, and Trading Economics show positive but small growth in every quarter this year. In the opening months of 2019, discussion of an impending recession was rampant. But a recession didn’t hit until 2020, and for many different reasons than the experts foresaw. The Goldman Sachs forecast is the most optimistic — above 1% growth in three of the four quarters.
The most interesting characterization of 2023 comes from Moody’s. The credit rating firm is calling the upcoming period a “slowcessation.” That’s a period of almost no growth that stays hovers above the 0% line.
According to Mark Zandi, Moody’s chief economist, inflation is moderating and the economy’s fundamentals are sound. “With a bit of luck and some reasonably deft policymaking by the Fed, the economy should avoid an outright downturn,” he said.