Are we in a recession? No, not yet. A historical primer.

Are we in a recession? No, not yet. A historical primer.


Times are uneasy, especially for small and medium-size businesses (SMBs). There’s no sugar coating it. By most measures, the U.S. economy is headed for a serious downturn, if not a full-blown recession.

But not all small businesses are created equal, and neither are all recessions. To learn lessons for today, let’s dive deeper into the historical data to see how we’ve fared in the past.

Early Days 

There have been 19 noteworthy recessions in U.S. history, with varying levels of data and information about the cause and impacts. Unsurprisingly, we have less information about recessions the earlier on they happened in American history, as data capture for businesses was often rudimentary until the 20th century.

Nevertheless, we know that early recessions were often caused by land speculation, such as the Panic of 1797. It’s likely that the early expansion of the U.S. and the bubble that burst had a big impact on merchants and other small business owners in early America.

In 1857, there was a panic triggered in part by the sinking of a ship filled with gold — and a subsequent lack of trust in paper money. U.S. banks at the time — some large, but some medium-size or small — depended on gold to back their paper currency. The railroad industry, quite large at the time, was also hit hard by this panic; railroad speculation also contributed to the recession of 1879, and the recession of 1893 started in part because of the failure of the Reading Railroad.

While railroads and banks were often large integrated businesses at the time, many individual proprietors, farmers, and shopkeepers would have been significantly impacted by these major shocks. Many smaller and regional banks folded during some of these recessions, including around 100 in the Panic of 1873. Notably, the government didn’t often intervene with effective help in this period, making the situation even more volatile for small businesses. It was a dangerous, risky world, especially for the mom-and-pop shops.

The Great Depression

While speculative bubble bursting was relatively common in the first century of America’s existence, nothing quite prepared the country for the Great Depression. Decades of industrialization and development seemed to have the country riding high, and many didn’t learn the lessons of past bubbles.

The Great Depression was actually two recessions back to back: one from 1929 to 1933 and another from 1937 to 1938. And while recessions are defined by falling GDP, there are other data points that we see come out of recessions, some of them as lagging indicators. One of those is unemployment, which hit nearly 25% in 1933 and stayed in the double digits until WWII began.

A number of factors contributed to this major shock to the U.S. — and world — economy, including a slowing of growth, the raising of interest rates despite that slowdown, and a 1929 stock market crash.

Small businesses suffered major losses during the Great Depression. In 1931 over 28,000 businesses failed, the majority of them small. Manufacturing was hit hard, as was farming. Many remember the Great Depression for the Dust Bowl, a severe drought in the Midwest that left thousands of Americans lacking food and shelter. Though defined differently at the time, many farmers were small family-owned businesses that struggled to make it through this decade.

Still, some lessons were learned in this period, including many relatively successful experiments on the part of the federal government to help the recovery. In 1938, the government introduced the first federal minimum wage as part of New Deal policies, something that still impacts many SMBs today.

The recession also saw the growth of small businesses that have grown over time, especially in the grocery store industry. Stores like Publix and King Kullen, now with hundreds of millions or even billions in revenue per year, were founded in this period — evidence of the innovative spirit that often accompanies small businesses during recessions and economic downturns.

Post War Through the 80s

A number of recessions hit the U.S. economy following WWII, increasingly impacted by the government raising interest rates. There was a small recession in 1945 at the end of the war, followed by more in 1949, 1953, and 1957.

Still, the 1950s through the 1980s was very much a period of expansion of the U.S. economy overall, fueled in part by the growth of consumer goods. This meant the growth and consolidation of many large businesses but also a boom in small and medium-size enterprises. As technology and the professionalization of many industries developed, so too did modern methods of data capture.

A major recession hit in 1973-1975 due to the OPEC oil embargo. In a nation now addicted to fossil fuels, this hit Americans hard, with long lines at the gas pump. Government policy didn’t always help: the 1970s are well known for stagflation, a period where slow growth combined with rising prices of consumer goods. As in other periods, rising interest rates would have hit small businesses particularly hard, since they tend to be a bit more dependent on lines of credit than larger corporations. Two additional recessions came about in the early 1980s, with higher interest rates and another oil embargo also contributing to the economic downturn.

This period also marked an increase in technological development and globalization, meaning a downturn for many small and medium-size manufacturers in the U.S. and a rise in the service sector.

The Dot-Com Boom and Bust

In 2001, the U.S. experienced another boom and bust, this time at the hands of the growing technology and internet sector. Causes included an overvalued stock market due to the dot-com bubble and rising interest rates put in place to combat such a market. Many small and medium-size technology companies in particular suffered during this bust, and a wave of consolidation followed.

The Great Recession 

The Great Recession lasted from December 2007 to June 2009, with lagging effects long after that. It was largely caused by subprime mortgage lending practices and the ensuing impacts on the banking industry.

Small and medium-size businesses were hit particularly hard, especially compared to the 2001 recession. According to nonfarm payroll employment data, a common measure of employment levels in the U.S., the number of jobs fell 10.4% in companies with fewer than 50 employees versus 7.5% in businesses with over 50 employees in this period.

Part of the reason small and medium-size businesses were hardest hit was because of lending, which tightened significantly in the wake of the crisis. The government, like in previous 20th century recessions, also helped with the recovery, and small and medium-size businesses were buoyed by the American Recovery and Reinvestment Act.

The Covid Pandemic 

The recession of 2020 was the worst since the Great Depression, caused by the COVID-19 pandemic, and the economy lost 20.7 million jobs in April 2020 alone. Many small businesses had only about two weeks of cash on hand to continue operations when disaster struck.

Small business employment quickly bounced back, however. They did so partly by adapting to the new environment, especially as online sales boomed. And many new businesses began as the recovery did, but the work is not done yet. Especially when it comes to women and minority-owned small and medium-size businesses, work still needs to be done to recover to pre-covid levels.

Looking Ahead 

History has shown that recessions come and go, but there are important lessons we can take away as we go forward. It’s important to always keep an eye on monetary policy, which can both contribute to a recession but also help mitigate its effects.

In general, small and medium businesses are critical to economic recovery because they tend to grow faster than larger firms. In recent decades, in fact, the 28 million small and medium-size businesses in the U.S. have created nearly two-thirds of net new private sector jobs.

Today, inflation and higher interest rates are both hitting SMBs hard, but competitive, nimble strategies are also on the rise, including focusing more intensely on digital marketing and branding as differentiators and lead generators.

Despite what we said at the top, maybe there is a little bit of sugar to be sprinkled on these uncertain times for small businesses. Recovery begets innovation, and new industries pop up as a result, which can be a great boost for SMBs overall. And many entrepreneurs and business owners remain optimistic: 83% of small businesses think they can withstand a recession today, citing their pandemic experiences as the main reason why they believe they are resilient enough to withstand another shock.

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