If the U.S. enters a recession this year, it may end up a lot like a boring conversation at a cocktail party: painfully long and shallow.
The world’s largest economy has a host of strengths, from well-capitalized banks to financially-stable households, which should help limit the depth of a downturn should one happen. Yet with interest rates barely above zero, Federal Reserve Chair Janet Yellen and her colleagues are short of measures to lift the economy quickly out of a rut, economists say.
"If a recession were to occur, it might be shallow but somewhat more extended than the 1990 and 2001 episodes since interest rates can’t be lowered as much," said Kevin Logan, chief U.S. economist for HSBC Securities (USA) Inc. in New York.
Both those downturns lasted eight months and were mild by historical standards. Gross domestic product fell by just 0.3 percent peak to trough in 2001. It dropped 1.3 percent on that basis from 1990 to 1991.
By contrast, the 2007-09 recession was the deepest and longest since the Great Depression. It went on for 18 months and saw output plunge by 4.2 percent.
If a slump does begin this year, it “will probably look more like the 2001 or the 1990-91 recession,” said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York. "It won’t have the same kind of financial dislocations and stress that was associated with” the last one.
With the global economy looking shaky and financial markets unsettled, the chances of a U.S. downturn have risen, according to economists surveyed last month by Bloomberg. They pegged the odds of a recession over the next 12 months at 20 percent, up from 15 percent in December, based on their median estimate.
The main reason many economists are betting against a decline in GDP this year is the same one that argues against a deep drop. The U.S. is mostly free of the kinds of economic distortions that could drive output sharply lower.
"Other than an inventory overhang, the U.S. doesn’t have any big imbalances," said Peter Hooper, a 26-year veteran of the Fed who is now chief economist for Deutsche Bank Securities in New York.
Growth slowed to 1 percent in the final three months of 2015 from 2 percent in the third quarter, in part because companies pared stock building.