Recession Myths

Consumer confidence plummeted in March to its lowest level since January 2021, amidst growing concerns that the U.S. may slip into a recession. While economists are mixed on the potential for a recession in the months ahead, they do agree that there are steps investors can take now to reduce anxiety and increase preparedness. That begins with separating recession myths from reality. 

Myth 1: A recession is determined by two consecutive quarterly drops in GDP. 
Reality: Gross domestic product (GDP) is a measure of the total market value of the goods and services produced within the United States in a year. While two consecutive drops in GDP is part of the equation that determines whether or not we’re in a recession, it’s not the whole story. The National Bureau of Economic Research uses other signs and indicators as well, including declines in manufacturing, production, employment, real income, and more. 

Myth 2: Recessions last for years. 
Reality: While a recession could last for several years, historically, since World War II, recessions in the U.S. have lasted an average of approximately 11 months. The longest post-WWII recession was the Great Recession, which began December 2007 and ended in June 2009, a total of 18 months. Conversely, the brief two-month Pandemic Recession in 2020 helped nudge the average length of a recession down.¹ While the market dropped more than 30% in that short time, it rebounded very quickly. 

Myth 3: We’re overdue for a recession. 
Reality: During prolonged periods of economic growth and expansion, it can be easy to forget that periods of recession and recovery are a natural part of the economic cycle. Since the end of World War II, the U.S has suffered through 12 recessions — an average of one every 6.5 years. The last economic expansion, starting at the end of the Great Recession, lasted 128 months. By that measure, we were overdue for an economic retraction when the Pandemic Recession hit in 2020.² While no one can predict future market activity or economic outcomes with certainty, many experts suggest that economic indicators point toward a growing probability of a recession in 2025.  

Whether we experience a recession this year or not, the following steps can help you weather changing market conditions and take advantage of any new opportunities that may arise: 
•    Focus on the fundamentals like asset allocation and portfolio diversification
•    Follow a disciplined investment strategy aligned with your goals, risk tolerance, and time frame
•    Rebalance your portfolio as needed to prevent style creep due to an extended bull market 
•    Consider investing excess cash during a market downturn when stock prices may be lower
•    Shore up emergency savings to prevent drawing down on long-term assets and cementing losses during periods of increased volatility

To learn more about strategies that seek to protect your income and assets in any market climate, call the office to schedule a time to talk or sign up for a time on our calendar: www.calendly.com/kfn. 

^{1) Burrows, Dan, “What Is a Recession? 10 Facts You Need to Know.” Kiplinger.com, https://www.kiplinger.com/slideshow/investing/t038-s001-recessions-10-facts-you-must-know/index.html.
2) Ibid.} 

This information was written by Kris Kennedy and KRW Creative Concepts, a non-affiliate of the broker-dealer.

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