Markets
Everything You Need to Know About Recessions
Everything You Need to Know About Recessions
Just like in life, markets go through peaks and valleys. The good news for investors is that often the peaks ascend to far greater heights than the depths of the valleys.
Today’s post helps to put recessions into perspective. It draws information from Capital Group to break down the frequency of economic expansions and recessions in modern U.S. history, while also showing their typical impact.
What is a Recession?
Not all recessions are the same. Some can last long while others are short. Some create lasting effects, while others are quickly forgotten. Some cripple entire economies, while others are much more targeted, impacting specific sectors within the economy.
Recession is when your neighbor loses their job. Depression is when you lose yours.
– Harry Truman
According to the National Bureau of Economic Research, a recession can be described as a significant decline in economic activity over an extended period of time, typically several months.
In the average recession, gross domestic product (GDP) is not the only thing shrinking—incomes, employment, industrial production, and retail sales tend to shrink as well. Economists generally consider two consecutive quarters of declining GDP as a recession.
The general economic model of a recession is that when unemployment rises, consumers are more likely to save than spend. This places pressure on businesses that rely on consumers’ income. As a result, company earnings and stock prices decline, which can fuel a negative cycle of economic decline and negative expectations of returns.
During economic recoveries and expansions, the opposite occurs. Rising employment encourages consumer spending, which bolsters corporate profits and stock market returns.
How Long Do Recessions Last?
Recessions generally do not last very long. According to Capital Group’s analysis of 10 cycles since 1950, the average length of a recession is 11 months, although they have ranged from eight to 18 months over the period of analysis.
Jobs losses and business closures are dramatic in the short term, though equity investments in the stock market have generally fared better. Throughout the history of economics, recessions have been relatively small blips.
Average Expansion | Average Recession | |
---|---|---|
Months | 67 | 11 |
GDP Growth | 24.3% | -1.8% |
S&P 500 Returns | 117% | 3% |
Net Jobs Added | 12M | -1.9M |
Over the last 65 years, the U.S. has been in an official recession for less than 15% of all months. In addition, the overall economic impact of most recessions is relatively small. The average expansion increased GDP by 24%, whereas the average recession decreased GDP by less than 2%.
In fact, equity returns can be positive throughout a contraction, since some of the strongest stock rallies have occurred in the later stages of a recession.
Buying the Dip: Recession Indicators
Whether you are an investor or not, it would be wise to pay attention to potential recessions and prepare accordingly.
There are several indicators that people can watch to anticipate a potential recession, which might give them an edge in preparing their portfolios:
Recession Indicator | Why is it Important? | Average Length Until Recession |
---|---|---|
Inverted Yield Curve | Often a sign the U.S. Fed has hiked short-term rates too high or investors are seeking long-term bonds over riskier assets. | 15.7 months |
Corporate Profits | When profits decline, businesses cut investment, employment, and wages. | 26.2 months |
Unemployment | When unemployment rises, consumers cut back on spending. | 6.1 months |
Housing Starts | When the economic outlook is poor, home builders often cut back on housing projects. | 5.3 months |
Leading Economic Index | Aggregation of multiple leading economic indicators. gives a broader look at the U.S. economy. | 4.1 months |
This is not a magic rubric for anticipating every economic downturn, but it helps individuals see the weather patterns on the horizon. Whether and where the storm hits is another question.
Markets
Visualizing the Major Product Exported by Each U.S. State
Canada is the top destination for products from 21 states.
Visualizing the Major Product Exported by Each State
The U.S. is the second biggest exporter in the world, accounting for over 8% of global exports.
In this graphic by NeoMam Studios, we analyze the primary product exported by each state, as well as its main destination, utilizing data from the U.S. International Trade Administration.
Canada: The Primary Destination
Canada serves as the largest export market for most of the Midwest, while Mexico holds the top spot as the export destination for much of the Southwest and Southeast. Additionally, Canada stands out as the primary importer of products from 21 states, with China and Germany trailing behind as notable destinations.
State | Destination | Top Product Exported | Value (USD) |
---|---|---|---|
Alabama | 🇩🇪 Germany | Transportation equip. | $3,649M |
Alaska | 🇨🇦 Canada | Minerals | $576M |
Arizona | 🇲🇽 Mexico | Minerals | $1,760M |
Arkansas | 🇨🇦 Canada | Processed Foods | $246M |
California | 🇨🇦 Canada | Computer & Electronics | $5,093M |
Colorado | 🇰🇷 South Korea | Processed Foods | $545M |
Connecticut | 🇩🇪 Germany | Transportation equip. | $1,581M |
Delaware | 🇰🇷 South Korea | Appliances | $419M |
Florida | 🇬🇧 UK | Chemicals | $2,447M |
Georgia | 🇨🇦 Canada | Machinery | $1,629M |
Hawaii | ðŸ‡ðŸ‡° Hong Kong | Transportation equip. | $68M |
Idaho | 🇹🇼 Taiwan | Computer & Electronics | $394M |
Illinois | 🇨🇦 Canada | Transportation equip. | $4,517M |
Indiana | 🇨🇦 Canada | Transportation equip. | $6,561M |
Iowa | 🇨🇦 Canada | Machinery | $1,598M |
Kansas | 🇲🇽 Mexico | Agricultural | $1,543M |
Kentucky | 🇨🇦 Canada | Transportation equip. | $3,630M |
Louisiana | 🇨🇳 China | Agricultural | $11,300M |
Maine | 🇨🇦 Canada | Oil & Gas | $504M |
Maryland | 🇫🇷 France | Transportation equip. | $949M |
Massachusetts | 🇨🇳 China | Machinery | $1,298M |
Michigan | 🇨🇳 China | Transportation equip. | $15,361M |
Minnesota | 🇨🇦 Canada | Petroleum & Coal | $2,787M |
Mississippi | 🇵🇦 Panama | Petroleum & Coal | $2,106M |
Missouri | 🇨🇦 Canada | Transportation equip. | $2,390M |
Montana | 🇨🇦 Canada | Minerals | $153M |
Nebraska | 🇲🇽 Mexico | Agricultural | $933M |
Nevada | 🇨🇠Switzerland | Metal | $1,399M |
New Hampshire | 🇩🇪 Germany | Transportation equip. | $695M |
New Jersey | 🇨🇦 Canada | Chemicals | $2,734M |
New Mexico | 🇲🇽 Mexico | Computer & Electronics | $2,014M |
New York | 🇨🇠Switzerland | Metal | $18,262M |
North Carolina | 🇨🇳 China | Chemicals | $4,312M |
North Dakota | 🇨🇦 Canada | Petroleum & Coal | $1,441M |
Ohio | 🇨🇦 Canada | Transportation equip. | $5,990M |
Oklahoma | 🇨🇦 Canada | Machinery | $418M |
Oregon | 🇨🇳 China | Computer & Electronics | $6,261M |
Pennsylvania | 🇨🇦 Canada | Chemicals | $2,280M |
Rhode Island | 🇮🇹 Italy | Waste & Scrap | $321M |
South Carolina | 🇩🇪 Germany | Transportation equip. | $3,774M |
South Dakota | 🇨🇦 Canada | Processed Foods | $297M |
Tennessee | 🇨🇦 Canada | Transportation equip. | $2,017M |
Texas | 🇲🇽 Mexico | Petroleum & Coal | $33,627M |
Utah | 🇬🇧 UK | Metal | $6,805M |
Vermont | 🇹🇼 Taiwan | Computer & Electronics | $447M |
Virginia | 🇮🇳 India | Minerals | $1,799M |
Washington | 🇨🇳 China | Agricultural | $10,553M |
West Virginia | 🇮🇳 India | Minerals | $657M |
Wisconsin | 🇨🇦 Canada | Machinery | $1,802M |
Wyoming | 🇮🇩 Indonesia | Chemicals | $200M |
When it comes to the types of exports, transportation equipment emerges as the primary source for the majority of states, with minerals and ores, chemicals, and computer and electronics following closely behind.
For instance, North Carolina ships $4.3 billion worth of chemicals to China, marking one of the longest-distance trade flows among states. Meanwhile, Florida boasts one of the most diverse export portfolios, engaging in trade with Europe, South America, and the Caribbean.
Louisiana heavily relies on the export of agricultural products to China, which contributes significantly to its total GDP. Similarly, Michigan’s transportation equipment exports to Canada constitute a noteworthy portion of the state’s GDP.
In Oregon, exports of semiconductors and other computer parts to China, driven by companies like Intel and Micron, play a crucial role in the state’s economy. Meanwhile, Utah predominantly exports primary metal manufacturing goods to the United Kingdom.
The biggest exporter in the country, Texas, sees a significant portion of its GDP attributed to exports to Mexico, further underlining the state’s economic ties with its southern neighbor.
-
Misc4 days ago
Visualized: The Most Followed People on Instagram in 2024
-
Stocks1 week ago
Will Tesla Lose Its Spot in the Magnificent Seven?
-
Technology1 week ago
Charted: The Jobs Most Impacted by AI
-
Markets1 week ago
Visualizing the Biggest Companies on Major Stock Exchanges
-
Money1 week ago
The World’s Top 50 Largest Banks by Consolidated Assets
-
Demographics1 week ago
Visualizing the Declining Birth Rate in Japan
-
Technology1 week ago
The World’s Largest Corporate Holders of Bitcoin
-
Misc1 week ago
A Map of Global Happiness By Country in 2024