Will There Be A Recession In 2023—And How Long Will It Last?

Key takeaways

• Most economists believe that a recession is likely in 2023
• Recessions are a regular part of a healthy economy and their length varies
• Calling the start and end of a recession is tricky due to the various moving parts of the economy

As soon as economists saw that inflation was not transitory but longer-lasting, they began considering the potential for a recession. With higher prices persisting even after the Federal Reserve raised interest rates, the expectation for a recession only mounted.

Here is where the economy stands now and if economists still believe a recession is likely—plus how Q.ai can help, whichever which way the markets move.

Fears of recession mounting

The Federal Reserve has been on a steady path of increasing interest rates to draw money out of the economy and slow down the rate of inflation. Its efforts are yielding some results as inflation slowed down again in December 2022 to a rate of 6.5%, according to the Consumer Price Index (CPI). The cost of food at home increased by 0.2%, while the cost of food away from home rose by 0.4%. Gasoline prices decreased by 9.4% from November.

These numbers make it sound like the economy is recovering, but inflation is still higher than the Federal Reserve would like. As a result, they will continue to keep rates high and possibly increase them more.

A recession is defined as a slowdown in economic activity that’s spread across all sectors of the economy and lasts for a significant period. It can be preceded by inflation, but not always. Many economists and financial experts are confident a recession will happen in 2023, but some, like Jamie Dimon, CEO of JP Morgan, are pushing predictions for a recession toward the end of 2023, feeling they might have overestimated the severity of and potential for a slowdown in the economy. Still, other economists see a 1960s-style recession in the near future.

In contrast, the Federal Reserve still feels the economy is too strong and would prefer the employment rate to slow down or decline. The Fed is looking to create a soft landing for the economy, hoping to avoid what happened in 2008.

How long the recession might last

Predicting the length of a recession is difficult. The National Bureau of Economic Research (NBER) has the official duty of calling a recession, but even the NBER can’t predict how long it will last. The general indicator of a recession is two quarters of negative gross domestic product (GDP) growth, but that’s only one indicator. There were two quarters of declining real GDP in 2022, but other economic indicators showed that the economy was not recessionary.

Every recession is unique, and the length of each one varies. The recession in the mid-1970s lasted 16 months, from November 1973 to March 1975. The early 1980s saw two recessions, the first lasting six months, from January 1980 to July 1980, and the second from July 1981 to November 1982, 16 months. The Great Recession of 2008 lasted from December 2007 to June 2009, a total of 18 months. Finally, the pandemic recession was only two months, from February 2020 to April 2020. Recessions tend to be short-lived in terms of duration, but they can feel like they go on for years as the economy takes time to shake off their effects.

This is because it takes time to recover from a recession. While economic indicators might show that a recession is over, each sector of the economy will not recover instantly. For example, while the Great Recession in 2008 only lasted 18 months, it took until 2015 for the unemployment rate to return to pre-recession levels.

Important economic indicators to watch

As previously mentioned, there are multiple economic indicators to watch to assess whether we’re in a recession. While they are usually reliable indicators and can demonstrate slowdowns across all sectors of the economy, they’re not always definitive. The NBER looks at multiple factors before calling a recession. For the layperson, the following economic indicators help predict the near future of certain industries and represent changes in different areas of the economy. The indicators include:

• Gross domestic product (GDP)
• Consumer Price Index (CPI)
• Producer Price Index (PPI)
• Non-farm payrolls
• Unemployment rate
• Consumer Confidence and Consumer Sentiment
• Durable goods orders
• Retail sales

If all of these indicators show negative numbers, it can be assumed that the economy is in a recession. There may be no official statement from the NBER because it takes time for a recession to become visible. However, the general public can use these indicators to determine if the current state of the economy has turned negative.

How to know the recession is over

Recessions tend to end with a whimper, not a bang. While calling a recession is difficult, it is just as challenging to announce it is over. The same issue with the NBER officially calling a recession after it started also happens at the end. The recession could end and may not be officially announced for a few months. The best indicator that a recessionary period has ended is when economic activity returns to an upward trend and stabilizes.

The main indicators that suggest a recession has ended include, but are not limited to, the following:

• Consumer Price Index (CPI)
• Gross domestic product (GDP)
• Unemployment rate

When these and other economic indicators are relatively stable and show nominal gains – for example, the annual rate of inflation reaching 1.0% over a period of time – the recession can be considered over. It’s worth noting that all of these indicators don’t move in lockstep with each other, but if they turn positive within months of each other, it shows that the economy is recovering.

The bottom line

Signs point to a recession in 2023, not just in the U.S. but globally, though many experts remain hopeful it will not be too severe. This is good news for everyone, as it could mean fewer people lose their jobs, and household financial impacts will be mild.

As an investor trying to take advantage of a rising stock market while also being cautious of the potential danger of a recession, look no further than the Inflation Protection Kit from Q.ai. The Kits offered by Q.ai use artificial intelligence to spot trends and invest accordingly.

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