Recession is in the cards. How bad will it be?

Arecession is coming. But despite this week’s warning signs, we have little idea when. It could be imminent, or the economy could chug along until the heat death of the universe or, as we might call it, the Greatest Depression.

How bad will the next recession be? Prognostications vary, and we don’t have great data on future events. But we’ve got plenty on what happened in the past, and we can look there for clues.

About 40 million U.S. adults haven’t seen a single recession during their working lives. Almost as many, including most millennials, have seen only one since they turned 18. That recession, the devastating Great Recession from December 2007 to June 2009, was (hopefully) not representative.

There have been 11 recessions since the Second World War. On average, they lasted 11.1 months, according to the official scorekeepers at the National Bureau of Economic Research. The shortest was over in just six months (1980) and is often counted alongside a follow-up recession in 1981-1982, while the longest lasted 18 months (2007-2009).

NBER’s standards are complicated, but a rule of thumb says we’re in a recession after the economy has contracted for two straight quarters. Indeed, averages show the economy typically shrinks about 1.4 per cent over two quarters before growth resumes.

On average, after around two quarters of a downturn, the stock market also begins to recover following a haircut of about seven per cent (based on the monthly average value of the S&P 500). In the worst recessions, the stock index has been slashed in half. In others it only slipped a few percentage points — the kind of loss that can be reversed with a few good days or weeks.

Jobs take longer to bounce back — unemployment tends to rise for 15 or 16 months before the labour market bottoms out. The unemployment rate increases about 2.4 percentage points, on average. The effect has ranged from a five-point jump in the Great Recession to a two-point rise in the recessions beginning in 1961 and 2001.

So for most North Americans who might remember the Great Recession painfully, the next recession, if it follows a more average path, could feel mild.

In February, Goldman Sachs Research analysts sorted a century of U.S. recessions into five categories. Three of them, industry, oil prices and inflation, appear less likely today, they wrote.

INDUSTRY

The tribulations of the manufacturing sector caused at least three recessions in the first half of the 20th century, but industry doesn’t often make or break American prosperity these days.

INFLATION

Runaway price growth, once the scourge of economic stewards, has remained restrained for this economic expansion, which began in 2009. Contrast that with the early 1980s, when two recessions followed then-Fed chair Paul Volcker’s successful but costly efforts to tame doubledigit inflation by increasing interest rates.

OIL

The petroleum industry has evolved since the 1973 embargo by OPEC helped send the economy south. Gasoline and other energy products have become a smaller share of consumer spending than ever before, while the fracking revolution allows U.S. producers to rapidly ramp up production and take advantage of rising prices before they can swing too dramatically.

The analysts weren’t as quick to rule out two big F words, financial and fiscal.

FINANCIAL

The most consistent factor in recent recessions — bubbles and risky markets — are in principle a major threat, the Goldman analysts write, but they seem “to be in abeyance at present, partly because of crisis-induced caution on the part of households, firms, and regulators.”

FISCAL

Governments usually go out of their way to avoid causing recessions, so fiscal-related downturns typically follow a major war, when military spending drops and the economy transitions to peacetime. A slowdown related to the expiration of some of the Trump tax cuts might fall into this category.

“With rising political polarization and uncertainty, broader fiscal policy could evolve into a risk that at the very least makes a future recession worse,” Goldman’s Jan Hatzius said in February. “By the time the next downturn rolls around, political dysfunction coupled with years of rising deficits might make fiscal policy less effective in spurring economic recovery.”

Hatzius noted Thursday the recent budget deal had diminished the risk of a fiscally induced recession.

The present unrest in the markets appears rooted in President Donald Trump’s trade war with China. There’s little recent precedent for a self-inflicted recession caused by protectionist trade, with one notable exception. The Smoot-Hawley tariffs in 1930 didn’t cause the Great Depression, but they probably made it greater.

Smoot-Hawley also happens to be the most recent time U.S. tariffs were as high as those now levied or threatened against China, according to Chad Bown and Eva (Yiwen) Zhang of the Peterson Institute for International Economics.

It’s hard to know what will finally end this expansion. It could be a death by a million cuts — tariffs, slowing global economy, a hangover from the Trump-tax-cut sugar high, a slowing labour market. If it’s this slow decline, that might end up feeling like a shallow recession, with a small rise in unemployment and a volatile but not terrorizing decline in stock values.

But if businesses and consumers in the U.S. and around the world start to panic, or freeze over uncertainty about what might happen next in trade or other global affairs, the outcome could be much worse.