The Shortest Recession in U.S. History?

In case you were wondering, the COVID-19 induced recession was the shortest in U.S. history. According to the National Bureau of Economic Research (NBER), the recession lasted two months – from February 2020 to April 2020. The NBER is the official authority of when recessions begin and end.

I thought the definition of a recession is two consecutive quarters of negative gross national product (GDP) output. So how could two months be used to define a recession? The NBER has an answer.

The contraction of the economy was extreme and short-lived. GDP fell 5% in Q1 of 2020 and 31.4% in Q2 of 2020 and that meets the classic definition of a recession. However, in the third quarter, the economy grew by 33.4%. In their latest press release, the NBR noted, “In normal times, a recession lasts more than a few months.” The NBER went on to say,

“The recent downturn had different characteristics and dynamics than prior recessions. Nonetheless, the committee concluded that the unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warranted the designation of this episode as a recession, even though the downturn was briefer than earlier contractions.”

In other words, the contraction from peak to trough to peak was sharp and short. It was dramatic enough for the NBER to declare a recession started and stopped in two months. Just to be clear, the NBER declared, “The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession associated with the February 2020 peak.”

The reason this recession was short is due to the direct stimulus that was pumped into the economy. Now that the immediate incentives are finished, who knows where we go from here from an economic standpoint? While many economic indicators are near pre-COVID levels, un-employment is still stubbornly high with over 7 million fewer Americans at work compared to February 2020. We’ll have to wait and see what the Federal government and the Federal Reserve do to prevent a second recession in the near future.

Before you go, grab your FREE report:

8 Tips to Help Make Sure You Don't Outlive Your Money in Retirement