Economic Growth

FAQ Recession FAQ

Download PDF

Interest in recessions has been elevated lately. The word “recession” started spiking in both media discussions and Google searches in March and persisted into April (see Figure A). While the public’s attention has waned a bit recently, economists continue to raise the alarm that recession probabilities are substantially higher today than in the recent past.

Americans often tell pollsters that they think the economy is in recession, but this seems like a shorthanded way to express their frustration with the state of economic rewards in this country. And it is true that the U.S. economy—the richest in the history of the world—does a bad job of translating overall growth into true economic security for most families. Contrary to popular opinion, though, recessions rarely occur, and when they do, they make economic outcomes far worse and notably increase deprivation for typical families.

In short, the question of whether a recession is coming is not driven by political point-scoring, it cannot be assessed by quirky responses to poll questions, and it has dire and significant consequences for the material circumstances of tens of millions of American families.

What is a recession?

Summary: The overall economy stops growing during a recession. The inflation-adjusted value of goods and services and incomes produced in the entire economy actually contracts over a significant period of time.

Why have people been talking more about a possible recession lately?

Summary: Despite inheriting a strong and stable economy, the Trump administration has made policy announcements and commitments that are highly likely to cause a recession over the next year, unless they are reversed.

Why are recessions so damaging to typical families?

Summary: The vast majority of U.S. families rely on earnings from the labor market for the vast majority of their income. Recessions badly impair labor markets, and when this happens, families’ ability to earn a decent living suffers. The labor market impairment caused by recessions lasts far longer than the recession itself.

What causes recessions?

Summary: The root cause of essentially every recession is a contraction in aggregate demand—expenditures by household consumers, private investors, government spending, or foreign sales of U.S. products. When this spending falls, a portion of the economy’s productive capacity (its labor force and its stock of buildings, equipment, and machinery) will become idle. While personal consumption is the largest component of GDP, private investment is traditionally the most volatile component and has historically contributed more to transitions between economic expansion and recession.

What can be done to end a recession?

Summary: Recessions end when policymakers use measures to boost spending by households, business, and governments. This often involves both cutting interest rates and also having the government spend more directly or send money to households or cut taxes.

Are standard recession indicators clearly signaling an imminent economic contraction?

Summary: Not as of May 2025. Standard recession indicators do not look strongly contractionary at the moment. Since January 2025 there has been more weakening than strengthening in these indicators, but by themselves, they are not clearly showing signs of recession.

If these traditional (“hard data”) recession indicators are not strongly signaling a recession, should we rest easy about the economy?

Summary: No, standard recession indicators always come with a lag, and the economy has usually entered a recession before these indicators are recognized in real time as having entered recessionary territory. Further, more forward-looking “sentiment” data shows a pronounced collapse in confidence across businesses and households. This is very consistent with a recession occurring later in the year.

Do recessions clearly increase poverty and other measures of economic suffering?

Summary: Yes, recessions are strongly associated with higher poverty and greater material deprivation. During the pandemic recession and early recovery, government support was so unprecedentedly generous that the poverty increases spurred by the recession were swamped by poverty declines driven by government aid. But that recession was a clear outlier.

Who is hurt the most in recessions?

Summary: Workers with the least labor market leverage usually bear the largest costs of a recession. Concretely, this means that employment declines the most for Black and Hispanic workers, younger workers, and workers without a college degree.

See related work on Recession/stimulus | Monetary policy and the Federal Reserve | Unemployment

See more work by Josh Bivens, Elise Gould, Adam S. Hersh, Hilary Wething, and Ben Zipperer