The Truth About Recessions

You can see from the graph that not all recessions and expansions were the same. The contraction that began in 2008 (the read dip toward the right of the graph) was especially painful compared with the eight other recessions that Americans have experienced in the past 65 years. And recessions tend to cause a lot of pain while they last: they reduce income, industrial production and retail sales, and cause rising unemployment. The stock market is especially averse to recessions; you often find bear markets associated with recessions.

But what stands out in this graphical portrayal of economic growth vs. contraction is the much greater size of the expansions: the purple mounds greatly exceed in size and duration any of the contractions that we’ve experienced. In all, over the past six and a half decade, the U.S. has experienced an official recession for around 15% of all months—and you know that it will again, sooner or later. But I think we can also reasonably expect that the subsequent recovery will be longer and steeper than the downturn. The economy and the markets can be thought of as a rollercoaster that tends to rise more often than it falls.