CNN
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The odds of a recession in the US may be creeping higher — but those rising risks do not mean a deep economic downturn is a foregone conclusion.
Still, that hasn’t stopped markets from being roiled and consumer and business confidence from being shaken, especially after President Donald Trump said he can’t rule out the possibility of such an event, or when Cabinet members indicated that a “detox period” is ahead and that the administration’s sweeping policies — including steep tariffs, mass deportations and drastic cutbacks in federal employment and spending — would be “worth it,” even if they trigger a recession.
Research shows, however, that recessions can have deeply negative consequences for people, businesses and communities that are not only long lasting but, in some cases, irreversible.
“What do we get from recessions? We get unemployment, we get lower incomes, we get debt default, we get increases in alcohol and drug abuse, psychological problems,” John Harvey, professor of economics at Texas Christian University, told CNN in an interview.
While no two recessions are exactly alike, they do share some commonalities, according to the International Monetary Fund: They last about a year; economic output, consumption and trade activity decline; unemployment jumps; housing and equity values are eroded; financial markets experience turmoil; and inflation slows amid curtailed demand.
While the impacts of such a downturn can vary widely, typically lower-income people are hit the hardest, and existing disparities only widen, said Elise Gould, senior economist at the Economic Policy Institute.
“Disproportionately, it tends to be those most historically disadvantaged workers that are batted around more in a bad labor market, and they experience much higher rates of unemployment,” she said. “We think about young people, who are also harmed in downturns — the last-hired, first-fired kind of phenomenon.”
Poorer outcomes and shorter lives
The effects can be especially damaging and long lasting for people just entering the labor market — including recent graduates and middle-aged workers — during a recession, said Hannes Schwandt, a health economist and economic demographer who’s closely studied those outcomes.
For example, during the 1981-1982 recession, the labor market entrants at the time not only experienced reductions in wages in the short term — an effect that was even more exacerbated for non-White workers — but they also suffered poorer economic, social and health outcomes in the decades that followed, according to Schwandt’s research.
In addition to lower long-term earnings, “you see lower marriage rates, higher divorce rate, lower-income spouses” and fewer children, he said. “And then in the mid-30s to late 30s, we start to see health impacts arise, disability rates increase and then we even see mortality rates increasing.”
“The lifespan is shorter for those cohorts,” he added.
While there are arguments that business cycle fluctuations and downturns can carry silver linings for some individuals or economic outcomes, these events come at the cost of others’ pain and hardship, Schwandt said.
“When it comes to the cost of these temporary fluctuations, we do see that certain groups are hit much more permanently,” he added.
Recessions have been shown to set back workers’ earning potential for years, Gould said.
“Let’s say you graduate into a recession and you can’t get a job in the field that you have studied and you have a lot of college debt,” she noted. “It can be very damaging to be able to get on the right track and get your career off the ground.”
That was the case for Laura Natale.
She graduated from the University of Portland in May 2008 with a slew of federal and private student loans and entered a labor market where hiring was slumping to record lows.
“I got a job at a call center, and I was making $13 an hour,” she said. “The student loans started back up (six months after graduation), and they were expecting $1,300 a month. I defaulted.”
As the recession deepened and unemployment shot higher, the interest and the penalties on Natale’s loans compounded much faster than her ability to move up the ladder to higher paying jobs.
“I’d work my ass off and come home, pay all my bills, and I’d have $100, maybe $200 left for the month for groceries, gas, everything else,” she said. “I never had a savings that was worth a damn. I was saving to pay my rent, and it was paycheck to paycheck.”
Nearly 17 years later, Natale has a good job and is happy with her work-life balance, but the remaining student loan debt still looms large, and the effects of the Great Recession still linger.
“Had it not been a recession, I think the options would have been a lot greater,” she said. “It took me years to get to a point of being able to get anything on my résumé that was worthy of getting a $30,000-a-year job.”
The Great Recession was so deep and the financial crisis so significant that it took years for the economy to fully rebound.
It was hard for people to get back on track, Gould said.
“I think that we learned that austerity is what really held back the recovery,” she said. “In the pandemic recovery, that was not what was pursued, and that’s why we had such a fast bounce-back.”
And the wave of cutbacks being made and proposed at the federal level could ultimately weaken the very programs that are designed to help people in times of need, EPI’s Gould said.
“So many people are living paycheck to paycheck, and this administration is looking at all sorts of cuts to the safety net, and that’s particularly concerning,” she said. “If you’re required to have a job (as a qualification for benefits), and you can’t find a job no matter what you do — if the unemployment rate shoots up through no fault of your own — getting a job to be able to secure those benefits, it’s just an impossibility.”
To that end, the current austerity approach being undertaken by the Trump administration could spell trouble both for current economic health as well as the ability to recover if things go south, said Harvey, the economist at Texas Christian University.
“Everyone’s focusing on the trade, the tariffs; but to me, the far scarier thing is cutting all this government spending,” Harvey said. “It’s almost like a cupping and bleeding kind of medicine from the Middle Ages — that we need to suffer to end up with some sort of positive outcome.”
He added: “And it’s simply not true: Suffering just creates suffering.”
