What Government Contractors Should Know About the 2023 Recession

Decreases in U.S. gross domestic product (GDP) have spurred forecasts for a recession in 2023. However, the country won’t officially be in a recession unless it’s announced by economists in the Business Cycle Dating Committee. 

Despite murmurs of a recession announcement in 2023, a survey of U.S. macroeconomists revealed that 68% of respondents believe 2023 to be the most likely start for the next recession. 

Experts also predict that the country’s next recession will be unlike the previous economic downturn in 2008 that resulted from the crash of the subprime mortgage market. 

Still, the economy is expected to contract in the near future, and that can mean fewer business development opportunities and slower revenue growth. 

But what about businesses that rely on government contracts?

Government work has long been considered relatively recession-proof. Let’s take a closer look at the differences between previous economic downturns and the upcoming recession and see what steps state and federal contractors can take to prepare.

Comparing the 2023 Recessionwith Previous Economic Downturns

One question at the forefront of many Americans’ minds is, “Will this be another 2008 recession?”

The 2008 recession (also known as The Great Recession) lasted 18 months, from December 2007 to June 2009. It’s the country’s second-largest economic downturn after the Great Depression of the 1930s. Notably, it left 8.7 million Americans unemployed, and its stock market crash resulted in a collective loss of $19 trillion of net worth. 

While the Great Recession was preceded by an asset bubble burst in the housing market, the leading indicator for the next recession is rising inflation.

However, there are several economic indicators in 2023 that lead experts to believe the next recession will not be as severe as the downturn of 2008. Specifically, economists point to strong housing and auto markets as well as low unemployment as signs of a more robust economy.

The Economic Indicatorsof a Recession

The classic indicator for a recession has been a decline in a country’s GDP for two consecutive quarters. But, with the U.S. economy increasingly depending on labor (instead of manufacturing), experts are turning to other signals before declaring a recession for the coming year.

To better understand how the next recession may impact the economy, as well as government contractors, it’s helpful to know what typically happens during times of economic downturn. 

Here are the indicators economists use to declare recessions and a look at the performance of the U.S. economy in 2023. 

1. Decline in Employment

When the economy contracts, it becomes harder for people to find jobs. As a result, unemployment rates begin to rise. 

While unemployment rates peaked in 2020 during the height of the COVID-19 pandemic recession, they have been steadily declining since. In 2023, unemployment has remained at a low, staying at 4% or under. 

2. Decline in Real Income and Consumer Spending

When the economy struggles, employers are forced to reduce hours or lay off employees, which leads to a decline in income rates. Lower income rates also lead to a decrease in consumer spending.

From 2007 to 2008, the Real Median Household Income decreased by roughly 3.6%. During the COVID-19 recession, income decreased by 2.2% from 2019 to 2020. And from 2020 to 2021, income saw a slightly smaller decrease of about 0.6%.

Consumer spending dipped during the pandemic but bounced back 9.1% in 2021 despite the small decrease in income. 

3. Decline in Production

Recession economies also see a decline in production and manufacturing as a result of more expensive raw materials. 

While U.S. manufacturing output decreased during the COVID-19 recession, it’s continued to increase each quarter since the third quarter of 2020, with quarterly growth ranging from 2.6% to 5.9% since 2021.

4. Increase in Cost of Living

Higher costs of living (as measured by the Consumer Price Index) may be indicative of a recession if inflation is involved. An increased cost of living has similar economic effects as a drop in income. Namely, it can curb consumer spending.

In the case of a 2022 or 2023 recession, inflation appears to be one of the stronger leading indicators. The U.S. Consumer Price Index (CPI) has continued to rise along with inflation for the first half of 2022, declining for the first time in August.