“Mild” Recessions


Bloomberg’s December 2022 survey of economists found that 70% expect a recession in 2023. Bank of America and Citibank forecast that such a recession could be “mild.” Consequently, it is worth considering what a mild recession might look like.

The 1982-2007 period is sometimes called “The Great Moderation” because that 25-year span was characterized by only two so-called “mild” recessions and no severe recessions. The first mild recession was from July 1990 to March 1991 with the second from March 2001 to November 2001. These recessions might seem mild compared to the Great Recession or the COVID-19 shutdowns, but they did not seem mild at the time.

The early 1990s recession saw the unemployment rate increase from 5.2% in June 1990 to 7.8% in June 1992. Nearly 1.5 million people lost jobs and these lost jobs were not recovered until February 1993, or not until almost two years after the recession ended. Gross domestic product (GDP), which is the value of all final goods and services produced, did not recover to its pre-recession trend until 1997. Likewise, the early 2000s recession saw the unemployment rate rise from 3.9% in December 2000 to 6.3% in June 2003. Two-point-six million people lost their jobs. It took until August 2005 to recover these jobs and for gross domestic product to return to its pre-recession trend. These two “mild” recessions thus saw around a half-decade of lost jobs and economic output.

A similar recession today that entailed the unemployment rate rising from 3.4% to 5.5% (a rise forecast by the Bank of America) would mean that 3.5 million people would lose their jobs. If the recoveries from the two mild recessions are a guide, these jobs would not be recovered until 2027 with GDP not recovering until as late as 2029.

Of course, the economy today is different from what it was in 1990 or 2001, most notably because there are 11 million job openings now, which is four million more than normal. It is likely that a recession reduces these excess job openings before resulting in widespread layoffs. However, a reduction of job openings would not increase the unemployment rate as forecasted. The forecasted increase in the unemployment rate means these forecasters are expecting job losses.

Just because a recession is forecast does not mean a recession will occur. These forecasts are likely based on the last time the Federal Reserve had to fight inflation, which was in the early 1980s and resulted in a recession. This is only one data point and thus not enough to establish a trend. Yet the risk of a recession remains. The problem is that through extraordinarily loose expansionary monetary and fiscal policy during the pandemic, the Federal Reserve and federal government caused an inflationary boom in the economy. Both should have known better. Now, we must hope that the economy can achieve a soft landing without a mild recession that won’t seem so mild if it happens.


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