In case you missed the news, we're officially in a recession, and it's certainly not the first time the U.S. economy has tanked. Just think back to the Great Recession of 2007 to 2009, which not only lasted two years, but has had a lasting impact on so many people's finances. But the current recession we're in differs from the ones that came before it in several ways, and it's those differences that could play a role in fueling our recovery.
1. It wasn't actually spurred by financial issues
Recessions are usually the result of economic turbulence, or some sort of economic activity. The Great Recession, for example, was spurred by the subprime mortgage crisis, while the 2001 recession before that was fueled by the dot-com bust.
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The recession we're currently in, however, didn't come as a result of brewing economic turmoil. Quite the contrary -- U.S. unemployment was only at 3.5% back in February, and both the stock market and housing market were strong. Rather, this recession was caused by a public health crisis, and the steps local leaders had to take to combat it.
When stay-at-home orders and restrictions were enacted back in March, countless businesses were forced to close their doors. That led to almost overnight job loss without warning. It also caused the stock market to crash, though investment values have, to a large extent, recovered value since mid-March. The jobless rate, however, has continued to climb. In April, it reached a record high of 14.7%, and while May's jobs report showed a decline in unemployment, a deeper dive into the numbers reveals that that may not have actually happened.
2. It practically happened overnight
Usually, there are warning signs when a recession is imminent. Jobless rates will slowly but steadily climb, or stock values will gradually decline. This recession, on the other hand, happened in the blink of an eye. Just a few weeks into the COVID-19 crisis, the unemployment rate hit double digits. By contrast, during the Great Recession, it wasn't until January of 2010 that unemployment peaked at 10.6% (which is still well below the level we're at now).
What does all of this mean as far as recovery goes?
It's clear that the COVID-19 outbreak and its related lockdown have led to a scenario where an otherwise thriving economy is suddenly overwhelmingly sluggish. But the speed at which the current recession happened could actually give us hope for a relatively quick recovery on the flipside.
Will things pick back up overnight? Certainly not. But as more and more states begin to reopen and restrictions are eased, we may find that the jobless rate steadily declines in the course of the coming year.
Even if there's a second wave of COVID-19 infections, we may not see the same extreme lockdown measures that were enacted during our first go-round, as many states have ramped up their testing capabilities and have contact tracing programs in place to better contain local outbreaks. Furthermore, once a COVID-19 vaccine is approved and made widely available, Americans will hopefully be in a position to resume normal life. And at that point, we may see millions of jobs added in short order.
As such, anyone living through today's recession should take some comfort in the fact that while our economy's rapid decline has been like none other, we may also be in for a warp speed recovery once there's unquestionably positive news on the COVID-19 front. Until then, we should take steps to protect ourselves from the uncertainty the coming months may bring. That means padding our emergency savings, being careful with how we invest, and making contingency plans in case things take a turn for the worse before they get better.