A recession in 2023 is looking like a real possibility, say the World Bank and Fannie Mae, among others. Do you know what that would mean for you and your company? You and your C-suite colleagues likely are already planning for a financial downturn. (See How a Recession Will Hit Your Executive Compensation — and How to Renegotiate Your Comp Plan for 2023.) Test your knowledge of recessions and their impact on businesses so that you can better contribute to leadership conversations.
Question
1 of
10
When does the U.S. government typically declare a recession?
Congratulations! Your answer is correct.
Sorry, your answer is not correct.
The economists at the National Bureau of Economic Research (NBER) decide when to declare a recession in the U.S. They define one as “an economic contraction starting at the peak of the expansion that preceded it and ending at the low point of the ensuing downturn.” The most popular rule of thumb for declaring a recession is after two consecutive quarters of negative GDP growth. While rising unemployment, a stock market crash, and lower spending/investment are also results of a recession, the NBER usually makes the declaration based on GDP trends.
Question
2 of
10
How long has the average U.S. recession lasted?
Congratulations! Your answer is correct.
Sorry, your answer is not correct.
Since 1857, the average U.S. recession has lasted 17 months. However, recessions have gotten less severe in modern times. Since 1980, the average recession has lasted only 10 months. The Great Recession of the late 2000s lasted 18 months, officially ending in June 2009 when GDP started growing again. Plus, the aftermath of that recession lasted much longer: Unemployment didn’t return to pre-recession levels until 2014, six years after this recession started.
Question
3 of
10
How long before/after a recession officially starts do companies consider layoffs?
Congratulations! Your answer is correct.
Sorry, your answer is not correct.
According to Firuz Alimov, assistant professor of Business Administration at UBIS-Geneva, "A recession is by definition backwards looking." By the time the NBER formally declares a recession, there have been two negative quarters of growth. "While the timing of layoffs depends on each company's circumstances, many likely will consider layoffs to begin in the three to six months before a recession is formally declared," he says. Even though the U.S. is not officially in a recession, major employers have started layoffs already.
Question
4 of
10
Which one of these sectors would be hurt most by a recession?
Congratulations! Your answer is correct.
Sorry, your answer is not correct.
Real estate heavily depends on the state of the economy. Automotive, leisure and hospitality, retail, and restaurants are also sectors that economists consider most sensitive to recessions.
Question
5 of
10
Which of these is considered a “recession-proof” sector?
Congratulations! Your answer is correct.
Sorry, your answer is not correct.
Health care is considered a recession-proof sector, along with education and government. Computers and IT have also been resistant to recessions, but recent layoffs at major tech employers such as Meta, Salesforce, and Twitter show that this may no longer be the case.
Question
6 of
10
Do recessions impact smaller or larger businesses worse?
Congratulations! Your answer is correct.
Sorry, your answer is not correct.
Smaller businesses have a harder time gaining access to credit, especially during a recession. They also have fewer income streams, which can all dry up during a recession. Larger businesses still struggle during a recession but have more ways to access credit, cut costs, and make sales. If they are publicly traded, they could also raise money by selling shares.
Question
7 of
10
What line items in corporate budgets are most susceptible to cuts during a recession?
Congratulations! Your answer is correct.
Sorry, your answer is not correct.
Alimov notes that companies typically consider cutting all these parts of the budget after they realize sales have gone down and they no longer need the same staffing level. As an alternative to cutting staff, he says that companies could consider reducing their corporate real estate footprint in response to a recession. “Companies have started moving away from singular large buildings that housed thousands of employees, to multiple smaller offices sporadically spread around,” he says.
Question
8 of
10
What do economists call a recession with a fast recovery?
Congratulations! Your answer is correct.
Sorry, your answer is not correct.
In a V-shaped recession, the economy recovers quickly. The Gulf War recession is an example, as the economy surged in the '90s. A U-shaped recession takes much longer to return to normal, such as after the financial crisis. A W-shaped recession has the recovery stall and fall back into another recession, whereas with an L-shaped recession, the economy takes many years before it even starts to recover. What shape do you think a possible 2023 recession could take?
Question
9 of
10
Which strategy are CEOs least likely to embrace as they try to weather a recession?
Congratulations! Your answer is correct.
Sorry, your answer is not correct.
In a recent survey of CEOs by KPMG, more than half of CEOs said they would consider reducing their workforces, pausing certain projects, and cutting back on ESG targets to deal with a recession. One area where CEOs aren’t slowing down, though, is mergers and acquisitions. A majority are still on the lookout for strategic deals that would grow their business, with the expectation that the economy will be strong again within the next three years.
Question
10 of
10
What sacrifice were executives most willing to make during the COVID-19 recession?
Congratulations! Your answer is correct.
Sorry, your answer is not correct.
To help their companies in the past recession, CEOs in struggling industries chose to give up some or even all their salary for the year. Impact International, a leadership and innovation consulting firm, tracked these pledges and found that CEOs in aviation, fashion, hospitality, and retail were most likely to give up their salaries during this stretch, with the average sacrifice running a little under $1 million. However, fewer were willing to give up their bonuses and other variable compensation.
Links and Resources Related to This Quiz
(Note: links will open new tabs to preserve your work in the quiz above.)
- How Do Economists Determine Whether the Economy Is in a Recession? (The White House)
- These Companies Are Preparing for a Recession With Layoffs and Hiring Freezes (Insight Global)
- Which Industries Will Be Most Affected by a Recession? (Kenzie Academy from Southern New Hampshire University)
- The 4 Most Recession-Proof Industries to Work in, According to Economists (CNBC.com)
- Around 90% of CEOs Believe a Recession Is Coming. Half of Them Are Already Planning for Layoffs (Fortune.com)
- 2022 U.S. CEO Outlook (KPMG)
- CEOs Sacrificing Salary in a Time of Crisis (Impact International)
