Timely and Relevant News: Shortest Recession Ever is Over!
The National Bureau of Economic Research (NBER) recently announced that the COVID-19 recession is over. If things don’t feel different, it’s because they announced that the recession ended in April 2020. Yes, that’s last year. We are now in the 15th month of the new expansion. This delay is perfectly normal. NBER doesn’t change a recession call once it’s made, so they need to have a high degree of confidence in the supporting data. Waiting until 15 months after the recession is over is actually the average since they started making recession calls in real time in the 1970s.
“Stock markets gave us an early signal on the end of the recession back in March 2020,” said LPL Research Chief Market Strategist Ryan Detrick. “The S&P 500 tends to bottom before a recession ends and it did this time as well, despite the narrow window of the shortest recession ever. It just took a while for the economic data to catch up.”
As shown in the chart below, the recession lasted only two months - the shortest on record, however also one of the steepest. The economy contracted more in two months than any other recession back to 1948.
So what happens now?
Based on history, we are likely in for several more years of economic expansion. The average length of an expansion does tell us something about how long it usually takes for the kind of economic excesses to build up that usually cause recessions. While post-World War II expansions have lasted as little as 12 months, the average is more than five years and the last four expansions have averaged over eight years.
Currently, the Federal Reserve does not expect to start hiking rates until 2023. With plenty of fiscal and monetary stimulus still in the system and a rapidly recovering job market - we don’t see a recession immediately on the horizon, which is usually good news for stocks.
NBER’s announcement is something to celebrate. However, it does not signal that there won't be bumps along the way. On the positive side, we are not expecting a recession any time soon and that’s usually good news for markets.
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