It's Official: We're in a Recession

Happy birthday, recession '08! You're now officially a year old!

That's right. The National Bureau of Economic Research has declared that the U.S. economy entered a recession in December of last year. Of course, that we're in a recession is hardly groundbreaking news these days. The debate now seems to hinge on talk about recession vs. depression.

The official, econ-geek, definition of a recession is typically two consecutive quarters of declines in gross domestic product. A depression is typically defined as a 10% decline in GDP. For most people, these definitions mean jack -- a recession is when it hurts, a depression is when it hurts real bad.

Still, the timing is pretty interesting. You'll recall December 2007 was just two months after the Dow Jones was setting all-time highs and companies like Chipotle (NYSE:CMG) and Google (NASDAQ:GOOG) were commanding stupendous earnings multiples. At the time, financial stocks like Citigroup (NYSE:C), Merrill Lynch (NYSE:MER), and E*Trade (NASDAQ:ETFC) had all coughed up staggering credit losses, but most investors acted like it'd just be a one-off event that would be contained. In hindsight, those tremors were obviously just a harbinger.

Why that's important is because markets are forward-looking creatures. In theory, they're supposed to extrapolate not just current data, but the discounted value of future data. What's obvious from looking at December 2007's market and comparing it with today's announcement is how stratospherically wrong that forward-looking judgment can be. Your move, efficient market theory.

At any rate, we're in a recession. That's reality. So what did past recessions look like? Here's a table showing every post-war recession and how long the slump lasted:

The average recession lasted something like 11 months, which would put our current situation at the long end of historical pullbacks. And check out this table. It shows that the official announcement of a recession typically comes toward the end, if not after, the actual occurrence

The obvious caveat is that what we're facing today is almost guaranteed to be worse than anything we've experienced in the recent past. A best-case scenario would probably be something akin to the recessions of the early '70s and early '80s, which would mean recovery starting sometime in the middle of next year. A worst-case scenario would be something closer to Japan's "lost decade," or even our own Great Depression, which debatably lasted from the late 1920s until the start of World War II roughly a decade later.

So when do you think we'll pull out of this recession? Tomorrow? Next year? Never? Take a second to weigh in via the Fool Poll below and throw in your thoughts in the comment section, if you feel so inclined.