What Is a Recession – and Should You Be Worried?

Short Answer: A recession is a period when the economy slows down significantly, often leading to job losses, falling stock prices and lower consumer spending. But while they can be scary, recessions are a normal part of a healthy economic cycle – and there are smart ways to prepare for and get through them.

Why do recessions make us so anxious?

Because for many of us, the word “recession” doesn’t just describe the economy – it describes our lives.

We’ve all either lived through one or heard the stories. A lost job. A business that didn’t make it. A retirement delayed. Even when the data says everything’s fine, it can feel like a recession when prices are high and uncertainty looms.

If you’ve been feeling uneasy lately, you’re not alone. Polls consistently show that most Americans think the economy is in worse shape than it actually is. That disconnect is real – and it’s worth unpacking.

So… what exactly is a recession?

Technically, a recession is a significant decline in economic activity across the economy that lasts more than a few months. The official determination comes from the National Bureau of Economic Research (NBER), which looks at a wide range of indicators:

• Declines in employment
• Falling household income
• Slower industrial production
• Lower retail sales

You might’ve heard the rule of thumb: “Two straight quarters of declining GDP equals a recession.” But that’s more of a shorthand. The NBER uses a broader lens to make the call.

How often do recessions happen?

Recessions aren’t rare – but they’re not constant, either. Historically:

• Since 1857, recessions occurred about every 3.25 years
• Since WWII, that’s slowed to about every 6.5 years

The good news? Modern recessions have generally been shorter and milder than in the past. The Great Recession (2007–2009) lasted 18 months. The Pandemic Recession? Just two.

How long do recessions typically last?

The average length of a U.S. recession since WWII is about 11 months. Most don’t last more than a year.

For example:

• The Great Recession lasted 18 months
• The COVID Recession lasted just 2 months
• The average across history (including the 1800s)? About 17.5 months

What’s the worst thing about recessions?

The fear of job loss – and it’s not unfounded.

A recession doesn’t just impact the markets; it hits paychecks and employment. For families relying on steady income, that’s the part that feels most real. That’s why having an emergency fund and a sound financial plan becomes crucial during uncertain times.

What causes recessions?

There’s no single culprit. Recessions can be triggered by:

• Economic shocks (like COVID-19 or the 1973 oil embargo)
• Rapid interest rate hikes
• Financial crises
• Poor policy decisions

Sometimes, it’s a combination. But the Federal Reserve plays a big role: When it raises rates to fight inflation, it also slows the economy. That tightrope walk is tricky, and can sometimes lead to a downturn.

Can we predict recessions?

We can try, but they’re notoriously hard to call in real time. One of the most reliable indicators has been the inverted yield curve, which has predicted nearly every recession for the last 50 years.

What’s that? It’s when short-term interest rates rise above long-term rates, signaling that investors expect a slowdown. That curve has been inverted recently, but no recession has yet followed, making some wonder if it can, at times, be a false signal.

Should you stay away from the market during a recession?

Not necessarily. In fact, history shows that sticking with your investment plan during a recession can be one of the smartest financial decisions you make.

Recessions tend to stir up a lot of fear, especially when the stock market is falling. It’s natural to want to pull out and wait for things to “feel safe” again. But that approach can backfire.

Here’s why:

• Markets are forward-looking. Stocks often start rising before the economy recovers. If you wait for good news, you might miss the early gains.
• Timing the market is incredibly hard. Even professionals struggle to get in and out at the right time.
• Missing just a few big days can hurt your returns. Some of the best days in the market happen during periods of high volatility – often when things still feel uncertain.

The better approach? Stay invested, stay diversified and stick to your long-term plan. Recessions come and go. Your financial goals should guide your decisions, not short-term headlines.

What should we do with our money in a recession?

Here are some financial moves to consider during a downturn:

• Pay off high-interest debt (like credit cards)
• Build or maintain an emergency fund
• Don’t panic-sell investments, rebalance if necessary
• Review your long-term financial plan

Recessions test our discipline, not just our dollars. The biggest mistake many people make is trying to time the market or making decisions when emotions are high.

Bottom line: Should we be worried?

We don’t think “worry” is the right word – but awareness is wise. Recessions will come and go. What matters most is how we prepare for them, not whether we can avoid them entirely.

If you’re nervous, that’s understandable. But fear doesn’t have to lead to inaction or bad decisions. With a good financial plan, a diversified portfolio and a long-term perspective, you can weather any storm and come out stronger on the other side.

Have questions about your plan or what a downturn could mean for your finances? Let’s talk. It’s never too early to prepare, and you don’t have to do it alone.