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. – 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. 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: 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. on To see how the minimum wage differs around the world, we’ve visualized data from Picodi, which includes values for 67 countries as of January 2023.
Monthly Minimum Wage, by Country
The following table includes all of the data used in this infographic. Each value represents the monthly minimum wage a full-time worker would receive in each country. Picodi states that these figures are net of taxes and have been converted to USD. Generally speaking, developed countries have a higher cost of living, and thus require a higher minimum wage. Two outliers in this dataset are Argentina and Turkey, which have increased their minimum wages by 100% or more from January 2022 levels. Turkey is suffering from an ongoing currency crisis, with the lira losing over 40% of its value in 2021. Prices of basic goods have increased considerably as the Turkish lira continues to plummet. In fact, a 2022 survey found that 70% of people in Turkey were struggling to pay for food. Argentina, South America’s second-biggest economy, is also suffering from very high inflation. In response, the country announced three minimum wage increases throughout 2022.
Minimum Wage in the U.S.
Within the U.S., minimum wage varies significantly by state. We’ve visualized each state’s basic minimum rate (hourly) using January 2023 data from the U.S. Department of Labor.
2023-03-17 Update: This map was updated to fix several incorrect values. We apologize for any confusion this may have caused. America’s federal minimum wage has remained unchanged since 2009 at $7.25 per hour. Each state is allowed to set their own minimum wage, as long as it’s higher than the federal minimum. In states that do not set their own minimum, the federal minimum applies. If we assume someone works 40 hours a week, the federal minimum wage of $7.25 translates to an annual figure of just $15,080 before taxes. California’s minimum wage of $15.50 translates to $32,240 before taxes. For further perspective, check out our 2022 infographic on the salary needed to buy a home across 50 U.S. cities.
