Recession outlook Are we in store for a downturn in 2024?

Learn the definition, causes and effects of a recession, and how you can prepare.


Updated: December 19, 2023

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There’s a lot of talk of a recession lately. With the rise in inflation throughout 2023, the cost of living getting ever more expensive and the Federal Reserve raising interest rates at lightening speed over the last year, it has, for a while, appeared that an economic downturn is inevitable. This has lead to many people asking, are we in a recession yet?

On the surface, there are signs that suggest that yes, we might already be in a recession. Still, the National Bureau of Economic Research, who have a final say on when a recession is officially here, has yet to declare one. 

So what is a recession? And what impact will it have on you? This guide will answer your questions, and help you prepare for a downturn. 

What is a recession?

A recession occurs when there are two two consecutive quarters when the gross domestic product (GDP) drops. But as with everything, there are exceptions to the rule.

What is the GDP? It’s a measure of how many goods and services are produced in a country, as well as how busy the industry has been. It measures this over a period of time, and gives a strong indication of the health of the country’s economy.

But if you focus only on the GDP, you don’t exactly get the full picture.

When you think of a recession, you probably think of job losses, companies making less sales and the economy slumping. These might be some signs of a recession, but there are actually many factors that determine when we enter a recession.

Economists use a number of factors to determine whether the economy is in a recession. Consumer and business spending, the labor market, individual incomes and industrial production all contribute to the decision.

The authority on when a recession hits is the National Bureau of Economic Research (NBER). They take a more holistic approach to measuring the state of the economy, looking at factors such as personal income, employment, industrial production, price changes and personal spending. 

What are they looking for? A period of “significant decline in economic activity that is spread across the economy and lasts more than a few months.”

Another sign of a recession is that it hits many parts of the economy, not just one. For example, if unemployment is high, but the GDP is performing well and inflation is low, no recession.

Nowadays, most recessions have a short life, anywhere from two to 18 months, but the time it takes for the economy to get back to its previous heights might be extended.

Because there's a lot of data to review and factors to consider, we might be living in a recession, but it could take a few months to declare it as one. That’s because the NBER requires a lot of data to be gathered before it rings the bell.

In November 2023, the economy grew, showing both continued strength and resilience. Inflation is finally slowing, interest rate hikes have paused and employment continues to rise. Despite this, a rash of bank failures and business slowing growth due to higher interest rates have economists predicting a mild recession is in our future.

What causes a recession?

Everything is smooth sailing when the economy is expanding. When a recession hits, it’s a perfect storm of economic factors.

A recession is rarely caused by one thing. It is usually a series of disruptions to the economy that impact one another. For instance, if there is a rise in unemployment, a lower gross domestic product, decrease in consumer spending, and higher interest rates, it could be a catastrophic economic cocktail.

The federal government also has tools they can use to slow down the economy, and initiate a recession if, say, inflation is rising too quickly. At these times, they can hike interest rates.

This discourages people and businesses from borrowing money, leading to less spending and therefore slower economic growth. You can see this tool being used right now in an effort to cool inflation.

Higher interest rates can also lead to job loss, fewer new jobs being created, and a reduction of corporate and individual spending.

If the economy is too slow to grow, the government may kick in some targeted fiscal stimulus - that is money - to encourage spending. The feds might also start to lower interest rates to get you to borrow and spend money more than you were already.

The Federal Reserve targets 2% inflation in order to keep the economy healthy and balanced. This rate is the ideal for encouraging employment and price stability.

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What happens in a recession?

During a recession, the mechanisms of the economy start to reveal themselves.

You’ll likely see employment slump and spending go down. The government may see more use of social programs and employment insurance, while at the same time, collect less tax revenue.

Interest rates could also drop, as the Federal Reserve lowers interest rates to spur economic activity.

You’ll no doubt feel the pinch, and might be less likely to spend on unnecessary goods and services.

Some ways that a recession can impact you are:


  • Manufacturing can slow down
  • Businesses reduce their spending, which leads to greater job losses
  • It can take longer to find new employment, with fewer job openings
  • New jobs may pay less than expected


  • The price of food will increase, increasing your grocery bill
  • You might hold off big ticket purchases like cars
  • You’ll probably buy fewer durable goods — like furniture and appliances
  • There are fewer home sales and more individuals renting

Investing, saving and lending

  • The stock market can decline
  • There’s a greater risk of default on loans and it could be more difficult to get a loan
  • Your retirement savings can decrease

Are we in a recession right now?

There have been 13 recessions in the U.S. since World War II. The most recent was in February 2020, with its lowest point being in April 2020. After this, the economy started to expand again. 

In the summer of 2022, there were two consecutive quarters of negative gross domestic product, which would typically indicate that recession was happening. But there were other factors indicating we were not in a recession, and the GDP grew through Q3 and Q4 2022, and continued to grow in the first half of 2023, and grew 5.2% in Q3 2023.

Economists also look at the Sahm rule, which uses unemployment rate trends. It suggests a recession has started if the average national unemployment rate rises by 0.50 percentage points or more within three months (compared to the low from the previous 12 months).

The Bureau of Labor Statistics reports that the unemployment rate was at 3.7% in November 2023, showing little change from the previous month. With the unemployment rate showing little net movement from early 2022, it seems unlikely that the decline of  0.5 percentage points needed to declare a recession will be reached. Instead, an economic recession might be declared based on other factors.

How long does a recession last?

The idea of a recession might be scary. But the good news is that they typically don’t last very long. While recessions don’t have a specific duration, they generally last around 10 months.

Just like how the National Bureau of Economic Research (NBER) waits to declare the start of a recession, it needs enough consecutive data to say it is over.

For example, if the GDP is healthy, inflation is being reduced, and the unemployment rate is falling, these can all indicate the business cycle returning to normal.

Recessions can last for a few months to a duration of years. For example, in 2020 we saw a  recession that lasted just a few months, while the Great Recession lasted from December 2007 to June 2009. That 18-month recession is the longest on record.

Chances are you’ll experience many recessions in your lifetime, and feel more prepared to weather the economic storm with each one that passes.

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How to prepare for a recession

The very word recession can cause fear and anxiety. Are you going to hang on to your job? What will your finances look like?

We are already feeling the effects of inflation. Fuel costs are soaring, and your dollar buys less and less at the grocery store.

It’s never too late to start preparing for a recession, and doing what you can to get your finances in order.

1. Create a budget

Take a look at your expenses, and lay them all out in one place. This allows you to easily identify where your money is going, and provides a window into what expenses you might be able to trim.

2. Assess your financial priorities

What expenses do you have that are unavoidable? Is saving for retirement more important to you than saving for your children’s education? 

Make sure you know how much cash you have available in case you need it. You should also take stock of any major life events (e.g. having a child) that you may be coming up so you’re financially ready for them.

3. Create an emergency fund

While you may feel you have job security, you never know what might happen. Having an emergency fund allows you to be ready to weather whatever storm you may face.

It’s recommended to have an emergency fund that covers three to six months of expenses. Saving that much might feel impossible, but it’s important to save what you can. To help you save, open up a secondary bank account, and set aside what money you can now.

4. Prioritize your debts

Debt repayment should always be a top priority. If you anticipate having less income or face unemployment due to a recession, debt can be crippling. If you are also dealing with a high interest rate, a few missed payments can make it impossible to catch up.

Consolidating your debts can ease your burden, and usually lets you pay back at a lower interest rate. Consolidating refers to bringing all your debt to one source. If you have debt on a high-interest credit card, you could consider transferring it to a card (or credit line) with less interest. You could also consolidate under your home equity line of credit (HELOC).

You can always contact your loan provider to see if they offer any conditions that will make your loan repayment easier. You may be able to have some debt, like student debt, “frozen”  for a period of time, giving you a bit of reprieve.

5. Limit your expenses

Being a penny pincher helps you prepare for tough times, and helps build your emergency fund. Avoid making any big or luxury purchases, especially if you’re concerned about your employment stability. Don’t take on any unnecessary loans, and avoid building debt on your credit card.

6. Update your resume

While you’re working, take time to ensure your resume is up-to-date with your most recent work experience. Take note of any recent accomplishments or job milestones on your social media as well, as this can attract recruiters.

The best time to search for a new job is when you’re employed. If you’re nervous about losing your job, start sending out resumes. Be sure to use your personal and professional connections as well, as these can open unexpected doors to job opportunities.

7. Get a side hustle

Driving for a ride sharing company or doing freelance work on the side can help you supplement your income. This is also a great way to boost your emergency fund quickly.

8. Don’t panic

When the signs of a recession start showing, it’s tempting to react and make impulsive decisions. Before making any major moves — especially those that impact your finances — take a step back and consider what consequences the actions could have.

You may feel like it’s a good idea to sell all your stocks, or that refinancing your mortgage is your best course of action, but be certain that you understand the impact these decisions will have. If you can, speak with a fee-only financial advisor who can give you professional guidance about how to prepare your finances for the future.

How to invest in a recession

While you might have to stretch your dollar further, recessions also provide an opportunity to make some strong returns with careful investing.

If you are looking to invest during a recession, here are some ways to protect your money through investment during a recession.

Buy the dip

Buy low and sell high — the golden rule of investing. While you never know when the true bottom of the dip will be, buying in a recession can provide great opportunities to get in the investment door.

You can also consider fractional investing in major companies if the entry cost is too high. This will let you get a piece of the action without draining your finances.

Look beyond stocks

Big names like Bill Gates and Robert Kiyosaki look to hard assets as a way to diversify their portfolios. Gates is a big investor in farmland, as are Jeff Bezos and Warren Buffett. Other hard assets worth considering are art and gold.

Recession resistant areas to consider investing in

Consumer staples

Warren Buffett is a big investor in consumer staples, with Berkshire Hathaway pouring a lot of money into Proctor & Gamble. 

That’s because consumer staples like food and drinks, household goods, and hygiene products will always be in demand, so they are viewed as a reliable investment choice. While the manufacturers might take a hit during a recession, chances are strong that they’ll continue to move products and bounce back quickly when it’s over.


Mike Wilson, stock chief of Morgan Stanley, sees the security that investing in utilities provides. Electricity, water, natural gas, and other essential services are recession-resistant sectors to consider.

Health care

Bank of America’s head of U.S. equity and quantitative strategy, Savita Subramanian, sees the value of investing in health care. Health care is a necessity, and always will be. With plenty of innovation and an aging population, it provides an almost guaranteed return on investment.

Healthcare ETFs are a great way to get into the market, especially if you’re new or have limited knowledge of the sector.

Real estate

While there’s a high price to get into real estate, people will always need a home. Investment properties can provide a regular income, and when you’re ready, you can hopefully sell the home for a profit.

Commercial real estate also offers an opportunity to invest in property. However, you need to be sure that you’re familiar with the risks involved in such a venture, and do your research before jumping.

Effects of recession on business

When a recession hits, all levels of the economy are impacted. Whether it’s on a personal or a business level, the ripples are felt across the board.

The impact may be short-term, while in other instances, the effects can be enduring and potentially debilitating.

If you run a small business, you might be concerned about how a recession could affect you.

Small businesses generate about 44% of U.S. economic activity, but they also feel the impact of recessions stronger than large businesses.

While small businesses contribute greatly to the American economy, they can face a harder time accessing credit during a recession. 

Typically, lenders are more reluctant to provide credit during economic downturns since there is a greater chance of defaults (lack of payment) on loans.

During a recession, the demand for products and services provided by small businesses tends to decrease. Since consumers spend less, small businesses are going to feel the impact more than larger ones. Big businesses might also cut costs reducing their reliance on these small businesses.

If a recession hits and you run a small company, you’d no doubt be concerned about reduced business. But the inability to get credit is also a major issue. You might need that credit to further build your business. When credit is required, it’s harder for them to get loans, which leads to greater complications, like the inability to grow as a company.

Unemployment and recession

Fear of a recession brings fear of unemployment. You might be worried about your company downsizing in order to save money, and might fear for your job security.

Industries that rely on consumer spending are typically the most vulnerable to the recession.

Retail, restaurants, travel and leisure, and housing are a few examples, but there are many others. These particular sectors are hard-hit because as consumers feel the pinch and need to stretch their dollars further, you’ll likely cut out unnecessary purchases. Less consumer spending makes it harder for businesses to stay afloat, which leads to closures and layoffs.

Other industries, like health care, education, insurance, financial, and grocery, are more recession proof. Since these industries are always in demand, and provide vital goods, they’ll survive even during tough economic times.

While recessions and unemployment typically go hand in hand, unemployment isn't the only factor.

When the National Bureau of Economic Research (NBER) declares a recession, the unemployment rate may not be at its lowest point (also known as its trough) yet.

For example, the Great Recession ended in June 2009, but the peak unemployment wasn’t reached until December — six months into the recovery period.

Likewise, when the unemployment rate is low, it can be a signal that the economy is expanding too rapidly and a course correction is needed, and therefore a recession is forthcoming.

In short, when the economy is good, there’s more production, which requires more workers to keep up with creating products and delivering services. When the economy is slowing, production is cut back, leading to unemployment and fewer jobs being created.

More: Strategies and tips for getting employed

What is the difference between recession and depression?

While recessions and depressions both describe periods of economic downturns, the two terms are far from interchangeable.

The economy always grows and contracts, and therefore goes through periods of expansion and contraction. 

Additionally, recessions normally affect only a localized area and don’t have a broad, multi-national impact.

The National Bureau of Economic Research (NBER) looks at these factors and judges whether or not the economy is in a recession:

  • Personal income
  • Employment rate
  • Industrial production
  • Wholesale-retail sales
  • Personal expenditures
  • Number of non-farm workers

Typically, you’ll see things like stocks declining in value, greater unemployment, less consumer spending, higher interest rates, and lower home prices during a recession.

Depressions are accompanied by severe economic downturns that have long-lasting effects and worldwide impact.

During the Great Depression — which began in 1929 and lasted a decade — over 25% of the U.S. workforce was unemployed.

While recessions are part of the economic cycle, depressions are rare occurrences. While they still might occur, there are numerous measures in place that stave off the possibility. For instance, Social Security, federal deposit insurance, and the minimum wage were all introduced as a result of the Great Depression.

Economic factor
Great Depression: 1929-1939
Great Recession: 2007-2009
Price level (Inflation)
10 years
18 months

Recession vs. inflation

While a recession and inflation are different things, they can be connected.

Often a period of high inflation can be an indicator of an upcoming recession, especially if the Fed raises rates in an effort to cool rising inflation. This action could also dampen economic activity, triggering a recession.

In short, recessions are periods of time when the economy is on a decline. Inflation refers to an increase in the price of goods and services. Both are natural occurrences in the economy, and both have big impacts on your wallet.

In the U.S., one way to measure inflation is by the Consumer Price Index (CPI). This index provides an average of how prices change over time for consumer goods and services.

As of December 2023, the CPI is up by 3.1% from the previous year.

When inflation is high, consumers and businesses tend to spend less money. This can lead to greater unemployment, and a surplus of supplies compared to demand. When this happens, the economy may start to decline: a period of recession.

There are two general types of inflation: demand-pull inflation and cost-push inflation. 

Demand-pull inflation occurs when consumer demand exceeds supply. Typically more people are employed, income rises, and consumers are spending more. Danger arises if there are government policies that influence consumers, like subsidies and lower interest rates. In these instances, demand may grow too quickly and can’t keep up with supply.

Cost-push inflation occurs when the cost of production rises. This can happen due to supply-chain disruptions, higher wages, and rising costs of raw materials. Taxes on imported goods, reopening of international trade, and other policy changes can affect cost-push inflation.

Inflation vs. recession



The increase in prices of goods and services over time.


-Greater supply of money

-Disruptions in the supply chain

-Increase of unemployment initiatives like stimulus checks

-Government policy that affects spending


-Less purchasing power and lower consumer spending

-Higher tax on real capital income

-Reduction in quality of life for lower-income individuals



A significant decline in economic activity that has far reaching effects across the economy, and lasts multiple months.


-Decline in gross domestic product

-Rise in unemployment

-Income decreases

-Reduced consumer spending

-Production and sales decline


-Fewer new jobs

-Lower salaries

-Economy slows down

Recession FAQ

  • How would a recession affect me?


    There are a number of ways a recession might affect you. If you work for a business that downsizes or shuts down, you could face unemployment. You could discover that you have to take a pay-cut to keep your job, or you might not get an anticipated bonus.

    Interest rates will probably be higher, so you’ll be less likely to take out a loan. Consumer spending also reduces during recessions, so you’ll probably be less likely to make a big-ticket purchase. Ensuring that you have an emergency fund in place is one of the steps you can take to prepare yourself for a recession.

  • Can you predict a recession?


    Recessions are a natural part of the modern economy. While the National Bureau of Economic Resources only assigns the title of a recession retroactively, there are signs that a recession is forthcoming.

    Some indicators that a recession could be coming or presently occurring are when unemployment rises, interest rates increase, there are fewer new jobs, the stock market starts to decline, and inflation increases.

  • Which is worse, inflation or recession?


    No matter how well you handle your money, inflation and recessions are a natural part of the economic cycle. The impact they have on you will depend on your financial situation.

    With inflation, the cost of necessities such as food and utilities might force you to slim down your lifestyle to endure the rising cost of living. With a recession, you may find yourself suddenly unemployed and then struggle to find another job.

    Inflation and recessions both have a greater impact on lower- and middle-class individuals. People with less wealth are more likely to be subject to job loss. Their lower incomes also means they’ll have less opportunity to save. No matter what your situation, smart investing and having an emergency fund can help you through both inflation and recessions.

James Battiston Content Specialist

James Battiston has been writing personal finance articles for various websites for the past four years. He has a background in film and TV production, and can often be found consuming far too much coffee.


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