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Though the economy occasionally sputtered in 2022, it has certainly been resilient — and now, near the end of 2023, the U.S. is still not currently in a recession, according to a traditional definition.
Even with tumultuous events earlier this year, such as the failure of three U.S. banks and the ongoing concern with financial institution stability, the nation has not tipped into recession — and certainly not a depression, either. A depression is an extended economic breakdown, and we have not seen signs of that kind of pain. (See recession vs. depression.)
The definition of a recession
The conventional benchmark has been that two consecutive quarters of a generally slowing economy defines a recession.
That definition was achieved in the first six months of 2022 as part of a shallow economic decline. In the first quarter, the economy shrank 1.6%, then improved, though still fell 0.6% in the second quarter due to lower inventory spending, housing investments and federal and state government spending.
However, the Bureau of Economic Analysis, an agency embedded in the U.S. Department of Commerce, estimates that as of the third quarter of 2023, the economy grew at an annual rate of 4.9%.
The Fed is pushing to slow the economy
The Federal Reserve, after issuing seven interest rate increases last year and four so far in 2023, is not trying to trigger a recession but does want to slow the economy. The Fed had paused interest rate hikes in June, noting inflation was showing some signs of easing, but warned that further rate increases were likely. On July 26, it fulfilled that warning by raising rates a quarter-point. The Fed left rates unchanged in September and November.
Lowering consumer demand is the tricky elixir intended to reverse the higher prices we face with inflation. The risk of a recession is always a possible side effect.
How long do recessions last?
Historically, recessions have lasted anywhere from two months to several years, according to the National Bureau of Economic Research. But our current economic climate presents unique circumstances that make it difficult to draw a direct comparison with past events.
The lingering effects of the pandemic, particularly in matters of inventory and supply chain disruptions, are major wild cards. Unemployment is still low, but we hear more talk of layoffs and business expense cutting each week. The war in Ukraine is another concern.
Economic cycles are impossible to predict, so it's best to be financially prepared.
Getting ready for a recession
There are a few ways to deal with current economic challenges and prepare for future ones. Starting or beefing up an emergency fund can help you face financial setbacks without going into debt.