Recession in 2026? What it means, what happens and how to prepare

The US recession probability has reached 93%, according to expert analysis of hard economic data from Union Bank of Switzerland (UBS). The bank’s analysis is based on signals from unemployment, industrial production, and credit markets, which all point to stagnation, while a full-blown recession might not necessarily happen, weak growth and potential stagflation are still major concerns for 2025 and 2026.

Official analysis from UBS cites data from May through July 2025, mirroring elevated risk levels that are historically worrying, considering their past accuracy in identifying economic turning points.

Economists recently pointed out that 22 of America’s 50 states are already in a recession, and if other states also see growth declines, this could pull the entire country into a broader economic downfall.

Even if at the moment the US is not in a recession, considering the current economic conditions, interest rates, inflation, and other data, it’s important to address the probability of an upcoming recession across the country.

This article explains the meaning and causes of a recession, its warning signs, and how long recessions usually last, while offering you smart advice on how you should prepare your finances and investments for a potential 2026 downturn.

What is a Recession?

A recession is a significant and sustained period of economic decline, involving a fall in real Gross Domestic Product (GDP), rising unemployment rates, and reduced spending and investment. This is a normal part of the economic cycle, which is officially declared by official organizations such as the National Bureau of Economic Research (NBER) after analyzing multiple indicators.

The NBER‘s official recession definition involves a significant decline in economic activity:

• Spread across the economy
• Lasting for more than a few months

3 Key Criteria to Define a Recession

To define recession, the NBER analyzes three significant criteria, including:

• Depth
• Diffusion
• Duration

Each criterion has to be met individually to some degree, but extreme conditions revealed by a single criterion may partially offset weaker indications from another, the NBER states. The organization offers as an example the case of the February 2020 peak in economic activity when the committee concluded that the subsequent drop in activity had been so high and widely diffused across the economy that, even if it was short-lived, the downturn should still be classified as a recession.

NBER states that a recession must influence the economy broadly and not be confined to a single sector, emphasizing economy-wide measures of economic activity.

Measures to Determine Months and Peaks, and Declines in Economic Activity

Determining the months of peaks and troughs is based on monthly measures of aggregate real economic activity published by the federal statistical agencies and includes the following:

• Real personal income less transfers
• Nonfarm payroll employment
• Employment measured by the household survey
• Real personal consumption expenditures
• Manufacturing and trade sales adjusted for price changes
• Industrial production

NBER highlights two measures that have been the most important in the past decades for analysis: real personal income less transfers and nonfarm payroll employment.

Differences Between an Economic Slowdown and a Recession

It’s important to highlight that an economic slowdown doesn’t necessarily mean a subsequent recession. An economic slowdown is a period of slower economic growth or a decrease in the rate of growth, while a recession involves a period of negative growth.

The slowdown takes place when the GDP growth rate decreases, but remains positive, and includes causes like:

• Declining consumer confidence
• Rising unemployment rates
• Slowing global trade

In an economic slowdown, governments may use policies such as cutting interest rates to stimulate the economy.

Unlike a slowdown, a recession highlights a significant decline in economic activity widespread across the nation, which lasts more than a few months. A prolonged slowdown may sometimes lead to a recession.

The main differences between a slowdown and a recession is that during a slowdown, there’s a decline in the growth rate of GDP, and a recession involves a drop in GDP that lasts for a longer period of time, and it’s spread across the country.

Recession vs an Economic Depression

The key difference between a recession and a depression is that an economic depression is a more severe and prolonged version of a recession.

A recession is considered a normal part of the economic cycle, which can last up to a year or four quarters. In contrast, a depression can last longer than a year, having a more significant long-term impact on the welfare of a nation’s citizens.

What’s Worse, Recession or Depression

An economic depression is worse compared to a recession due to the following factors:

• Depression is much deeper and longer-lasting compared to a recession.
• People’s financial and emotional recovery after a depression takes a longer time compared to a recession; after a recession, recovery comes relatively soon as the economic conditions improve, while post depression, people’s emotional and financial recovery is longer and harder, even after the economy starts to grow again

What Causes a Recession?

The main causes of a recession include the following:

• High inflation
• Interest rate hikes
• Rising national debt
• Reduced demand and spending
• Global or national shocks

All these factors can trigger a recession that is characterized by a drop in GDP and a significant decline in economic activity, lasting for up to a year and spreading across the nation.

Past recessions in the US include the 2020 recession during the covid period (classified as such by the NBER) and the 2007-2009 recession, a more significant global market decline called “The Great Recession,” it was the longest economic downturn since the Great Depression, according to the IMF.

What Caused the 2008 Recession?

The Great Recession was a global recession that began in mid-2007 and was exacerbated by a financial crisis in 2008.

The 2008 financial crisis, also known as the Panic of 2008, was a major worldwide financial crisis centered in the US.

The causes included the following:

• Excessive speculation of property values by both homeowners and financial institutions
• Predatory lending for subprime mortgages
• Regulation deficiencies
• Cash-out refinancings that fueled an increase in consumption that could no longer be sustained when home prices declined

The first phase began in early 2007, the liquidity crisis spread to global institutions by mid-2007 and climaxed with the bankruptcy of Lehman Brothers in September 2008, triggering a market crash and bank runs in more countries.

The combination of banks being unable to provide funds to businesses and homeowners paying debt rather than borrowing and spending led to the Great Recession. It officially began in the US in December 2007 and lasted until June 2009.

What Happens During a Recession?

A recession involves a period of negative economic growth, with multiple effects on the economy, jobs, markets, housing, and spending.

Here’s what happens during a recession to the economy:

• The nation’s GDP records a sharp decline.
• Employment rates drop significantly.
• Overall consumer confidence falls.
• Housing prices usually fall or stagnate, demand is weak, people lose jobs, and fewer people can buy homes
• Industrial activity is slower.

What Happens to Prices During a Recession?

During a recession, prices tend to stop rising, and in some cases, they fall:

• Some companies choose to lower prices or offer discounts to attract customers.
• Asset prices usually drop; housing prices fall due to less demand and tighter credit, stocks and crypto decline, and commodities like oil or metals drop due to slower industrial activity

On the other hand, not all prices fall. Essential goods, including energy or rent, stay high or even rise, especially if there’s a supply shock – similar to the Covid-19 recession or the energy crisis in 2022.

How Long Does a Recession Last?

The average length of a recession is between a few months to a year. Historical data show the following average recession durations in the US:

• COVID-19 recession – the shortest but the sharpest recession on record as per the NBER, lasting from February to April 2020
• The 2008 recession – the Great Recession officially lasted in the US from December 2007 to June 2009, for approximately 18 months, and was catalogued as the longest and deepest recession since the Great Depression of the 1930s.

Signs of a Recession

Signs of a recession include the following:

• A yield curve inversion – The yield curve shows the relationship between interest rates and the maturity of government bonds, and under normal conditions, it slopes upward.
• Layoffs – The unemployment rate surges.
• Inflation slowdown – Inflation slows down when demand weakens, and consumers/businesses start spending less.
• Slowing GDP growth or GDP turning negative  – An early sign that the economy is losing momentum.
• Decline in economic activity – Manufacturing and businesses see a drop in activity.
• Falling consumer confidence and spending – People delay big purchases such as homes, cars when they feel uncertain.
• Corporate earnings slowdown – Companies report weaker profits or cut forecasts, signaling weaker demand and potential upcoming layoffs.
• Tightening credit conditions – Banks raise caution in lending, raising interest rates on loans.
• Stock market volatilty and decline – Sustained market sell-offs reflect dropping investor confidence.
• Dropping in housing market activity – Fewer home sales and constructions, signalling early economic stress signals.
• Rising business bankruptcies – Indicating that companies are under financial strain.

Leading vs Lagging Recession Indicators

Early signs before a recession are called leading indicators, and they help predict what’s coming next.

On the other hand, the lagging indicators imply changes after the economy enters a recession, confirming that the economy has already shifted direction and entered a recession.

The leading and lagging signs of a recession are grouped as follows:

The GDP moves along with the economy, meaning that it’s more of a coincident indicator, rather than a leading/lagging sign of a recession.

Are We in a Recession?

The US is not in a recession as of today, but some key indicators point to a potential upcoming recession.

Analysts from The Economics Times pointed out on October 22 that a US recession probability is now at 93%, citing data from UBS between May and July 2025. UBS describes the economy as weak, but not collapsing, suggesting a prolonged phase of stagnation rather than an immediate recession.

The metrics worth addressing are the following:

• UD GDP indicator shows a decrease in growth in 2025 – This year, the US economy is projected to grow at 2%, slowing down from 2.8% in 2024 due to high tariffs and reduced immigration, according to the IMF.
• Yield curve inversion – UBS reported that the yield curve inversion has been steady over recent months, but it has increased since the start of 2025, suggesting investors expect economic weakness, leading to a higher recession probability.
• Employment trends – In September 2025, US recorded a slight rise in the unemployment rate to an estimated 4.3%; US job market remains sluggish. Also, in October, initial jobless claims by federal workers spiked to 2019 levels, amidst a government shutdown in the US since October 1st.
• Inflation data – In August, US consumer price inflation surged to 2.9%.
• US stock market – The S&P 500 is up by over 14% YTD.

Economic data show mixed signals, but the US is not in a recession at the moment. However, in a recent MarketWatch report, chief economist at Moody’s Analytics, Mark Zandi, said that 22 of America’s 50 states are already in a recession, with risks for the entire nation.

It’s also worth noting that the mainstream media usually declares a recession earlier or more frequently compared to the NBER data. This is because the media mostly takes into consideration only GDP numbers, while the government looks at the overall economy and multiple indicators before declaring a recession.

Considering the latest economic data, we cannot say that at the moment the US is in a recession yet, although some cautionary signals are worth following.

When Was the Last Recession?

The last recession in the US was the COVID-19 2020 recession during the covid period (classified as such by the NBER) –  the shortest but the most intense one. In 2020, the US GDP declined to $21.4 trillion from $21.5 trillion in 2019.

Previously, the US saw the 2007-2009 recession – the longest economic downturn since the Great Depression, according to the IMF.

The US GDP dropped from $14.8 trillion in 2008 to $14.5 trillion in 2009.

What We Learned from Past Recessions

Both the COVID-19 recession and the one between 2007 and 2009 taught the US and the entire world multiple noteworthy lessons.

Some crucial lessons that these events, which have shaken the entire world, have taught us are the following:

• The unexpected can hit a country or even the whole world anytime.
• We must always be prepared in case a black swan event were to occur again.
• A recession in important countries like the US can be contagious to other nations.
• If chaos arrives, we must remain calm and learn to control panic.
• It’s vital to have analytical, critical thinking, and a problem-solving mindset.
• We must prepare a plan for potential future recessions that includes finance and insurance.
• Preparing ahead makes recovery a lot easier.

How to Prepare for a Recession

There are various signs of a potential upcoming downturn of the economy, and even if we’re currently not in a recession, knowing how to prepare your finances for a recession is crucial.

Practical Advice on How to Prepare for a Recession 2026

Here’s how you can prepare your finances for a potential upcoming recession:

• Build savings – Strengthen your emergency fund, essential for periods of recession.
• Reduce debts – Avoid loans from banks.
• Optimize your budget – Track spending, cut non-essential expenses, and prioritize essential costs.
• Diversify your income – Make sure you have multiple income sources.
• Protect your income – Consider upskilling or learning new skills that are in high-demand and recession-resistant fields.
• Consider freelancing – Part-time work can boost your income.
• Choose a recession-proof job or build a recession-proof business.
• Avoid common mistakes like panic-selling or over-leveraging.
• Set up insurance – Make sure you have health, life, and home insurance.
• Monitor economic indicators – Remain informed, but don’t panic, and use the available data to make calculated financial decisions.

Recession-Proof Jobs and Businesses

If you’re wondering which jobs are recession-proof, here’s a list of fields with stable demand even during a potential recession.

• Medical field
• Education
• IT and AI
• Trades
• Journalism
• Telecomunications
• Essential services like food, utilities, repair, and more

If you’re planning on starting a business, you should analyze what businesses do well in a recession and which industries are recession-proof.

Some examples of recession-proof businesses include the following: food, healthcare, education, utilities, repair, and others.

What to Invest in During a Recession

You have more options to choose from as the best investments during a recession. Here’s a list of safe investments during a recession period:

• Bitcoin and crypto
• Precious metals like gold, silver
• Reliable recession-proof stocks, bonds
• Defensive sectors

Why Choose Bitcoin as Your Top Investment?

It’s important that your recession-proof portfolio includes Bitcoin, the best-performing asset ever. Despite its speculative nature, Bitcoin has proven over the years that it’s a resilient asset, managing to become a hedge against inflation and compete with gold, stocks, and other investments.

Despite the macro-economic conditions and temporary intense market volatilty, Bitcoin managed to survive and proved its multilateral value globally. This is the main reason why the IMF officially recognized Bitcoin and crypto gained an active role in the US economy and beyond during the past years.

Bitcoin was created during a financial crisis, for such times, and has proven itself to be a worthy pillar in the global economy.

Bitcoin vs Gold

It’s also worth noting that, compared to gold, Bitcoin showed significantly higher returns over the last decade as an investment. Investing in Bitcoin brought exponentially higher returns, as shown by a recent analysis.

Both Bitcoin and gold reached new ATHs in 2025. BTC hit an ATH of over $126,000 on October 6, 2025 and gold reached its new ATH on October 20, above $4,381.

However, the next day, on October 21, the gold market crashed, potentially signaling a rotation to Bitcoin.

Also, October 22 marked the biggest 1-day gold drop since April 2013, with gold prices falling -5.7%.

On the other hand, China took advantage of the recent crash and bought gold, boosting ownership 25-fold in 2025, latest reports show.

Bitcoin vs S&P 500

The S&P 500 is up by almost 800% all-time (data measured since 1996).

Bitcoin, on the other hand, is up by more than 176 million percent since its debut.

Your recession-proof portfolio can include crypto as well, as long as you choose well-established projects with trustworthy teams and communities that have proven their intrinsic value over time.

Conclusion

A recession is a normal period in the economic cycle, and it’s characterized by a drop in GDP and other economic indicators, including rising unemployment rates and reduced spending and investment. Recessions usually follow an economic slowdown, and they can last between a few months and about a year. However, longer periods of recessions have occurred, like the Great Recession between 2007 and 2009.

However, having a well-prepared plan involving finances and insurance can make such periods easier to navigate and can also speed up recovery. Diversifying your investments is a must, together with having a mindset with decision-making abilities.

FAQ

What is a Recession?

A recession is a normal part of the economic cycle, mainly characterized by a drop in GDP, rising unemployment rates, reduced spending and investments, among other factors. A recession can spread over an entire country and can even hit the whole world.

Are We in a Recession?

We are currently not in a recession, but some key indicators show risks of a potential upcoming recession.

How to Prepare for a Recession?

Preparing for a recession involves creating a recession-proof plan involving finances, insurance, and mindset. To prepare for such a potential event, you have to consider your job, budget, and a diversified portfolio in trustworthy assets.

When Was the Last Recession?

The last recession took place in 2020 as the COVID-19 pandemic struck the entire world.

Is a Recession Coming in 2026?

We cannot say for sure if a recession is coming in 2026, but we must always be prepared.

What’s the Difference Between a Recession and a Depression?

A recession usually lasts for a few months, but a depression lasts longer and it’s stronger – this means that the economic downfall is deeper and the recovery process is lengthier and more difficult.

How Long Do Recessions Usually Last?

Recessions usually last a few months.

Can Crypto Survive a Recession?

As history has shown so far, crypto can survive a recession. Bitcoin was created specifically for such difficult economic times, and it has shown extraordinary resilience despite all global conditions and market volatility.