Technically speaking, this latest recession is over. When will the next one begin? How serious will it be? History gives us a pretty good picture of what to expect.

Somewhere I had once read that “We fear most that which we understand least.” I had never really applied that statement to recessions, but after living through this latest one, I realized that the above statement applies. All I knew about recessions was that every so often they come in like a thief in the night and steal peoples money, hopes and dreams. 

Listening to the garbage on the evening news for the last year and a half plus, I realized that none of the pundits on the 6 O’clock news really had any grasp of what was happening either. One would say the sky was falling, the next would say we’re almost out of it. So I decided recently to educate myself on the topic so I’d have a better understanding of where we have been and where we may be heading. Did I find the magic bullet that will give me with 100% certainty the date when a recession would start and end? Nope. But they are more predictable than I had expected them to be.

If you believe the government reports, we are just starting to get out of what has been a fairly serious recession. So it’s a good time to sit back and think about the recession. Was it more severe than most or just press hype? What caused it? More importantly, how long until the next recession, how bad will the next one be, and what will cause it?

Interestingly enough, it turs out that if you check out the history of recessions in America, you will find some regular patterns. Just like you know there will be tornados in the Midwest next spring, there will be recessions under certain circumstances and at somewhat regular intervals in the US. With tornados you cannot predict the exact day and severity of a particular tornado–but if you live in certain parts of the US you learn to heighten your vigilance at certain times of the year and with certain weather patterns. You can do the same with a recession. Had I known this a couple years ago I would have changed the allocations in my 401K and perhaps saved myself a 40% drop and several severe headaches.

First a little bit of history. The government does not date recessions before 1857, because very few figures were being kept at that time. Recessions prior to 1857 have been determined by scholars looking at historical documents such as old newspapers and books, business magazines and business records and ledgers from major companies of the time.

From 1857 until the end of World War II, some statistics were kept, but since this was before the day of the computer, the statistics were somewhat limited. The bulk of modern economic statistics such as unemployment and gross domestic product were not seriously analyzed until after the end of World War II.

The exact number of recessions the U.S. has suffered is currently under debate, but there may have been as many as 47 recessions in our history.

The average length of the recessions between 1837 and 1900 averaged approximately one year and 9 months in length. The time between recessions in this period was approximately 2 years and 2 months. The estimated drop in the Gross Domestic Product (GDP) for these older recessions was fairly steep, averaging around 23%.

Recessions in the early 1900’s were of approximately the same length and severity as the earlier ones. The now famous “Great Depression” lasted just over 3 1/2 years with peak unemployment of 35% and a 26.7% drop in the Gross Domestic Product.

Skipping ahead to modern days, we start to see changes. From 1973 to present, there have been a total of 7 recessions during that 36 year period, or an average of one recession every 5 or so years. The longest recession of that period was 1 year and 4 months. (Which happened twice, once in 1973 and once in 1981) The exact length of our current recession has not been determined yet, but there is a good chance it could become the longest recession of modern times. Unemployment during those recessions ranged between 6.3% and a record 10.8% in 1981. Currently our unemployment rate stands at 10.1%. Very interestingly, the decline in GDP for all those recessions has been fairly modest compared to the old standards, ranging from a low percentage of -0.3% in 2001 to this recessions high of -3.9%. It would seem that we have become more spoiled in this respect than our forefathers.

It appears that we are also much more able to control our economy than we were able to in the days of the horse and buggy. Instead of averaging a year or two between recessions, we are now averaging about 5 years between recessions. Instead of unemployment rates in the 20 to 30% range, unemployment during a recession is generally between 6 and 10%. And instead of the GDP dropping in the 15 to 30% range, modern day GDP’s during recessions are dropping mostly between 1 and 3%.

I suspect much of this better control is due to the computerization of statistics, which gives us a clearer picture and closer to real-time information that was available in the past. This makes it more difficult for current day politicians to completely muck things up, although they still manage to do an admirable job of mucking anyhow.

A very interesting fact comes out when analyzing the cause of modern day recessions. Of the 7 recessions we have seen since 1973, four of them have had oil prices as a directly contributing factor. In 1973 it was OPEC raising oil prices. In 1981 it was the Iranian Revolution and more oil price increases. In 1990 it was a combination of the Savings and Loan Crisis and the 1990 Oil Price shock. (Sound familiar?) And the latest recession of course started by a combination of the Subprime Mortgage Mess, the housing bubble bursting and $150 per barrel oil prices.

And actually, while technically I haven’t blamed the 2001 recession on oil, that recession was actually caused by the Dot Com bubble bursting, combined with the 9/11 attacks. Do we see a trend here that needs to be changed?

So how long until the next recession starts? There is of course no way in telling for sure. And the great wild card is oil prices. If the government were to get (and stay) serious about getting energy prices under control, we could probably expect longer periods between recessions. But we failed to do anything serious about oil after the 1973 recession, the 1981 recession, and the 1990 recession. Politicians are talking change now, but once the dust settles, will the politicians and American citizens settle back into a comfort zone the same way we did after the other three major oil shocks? Will we go back to business as usual?

Assuming the current recession was officially over in late 2009, when can we reasonably expect the next one to begin? Going strictly by averages, since we have averaged about 5 years between recessions, 2014 would be a good guess. And there is better than a 50-50 chance that an oil crisis will have something to do with the starting of the next recession unless both the citizens and politicians get serious about alternative energy.

I do need to mention that the above guesstimate as to the arrival of the next recession does not mean that I believe I have the one true answer. It is only an estimate based on previous history. If Washington and the American people do the things that are necessary, perhaps the next recession can be delayed. Conversly, if we fall back on old ways and nothing gets done, we could see the next recession much sooner.