Gen Z and millennials are terrified about the economy because they've never seen a 'normal' recession before

• If the US falls into a new recession, it will likely be the first mild one Gen Zers and millennials have seen.
• The two generations have only experienced the historically disastrous downturns of 2008 and 2020.

A recession could be coming, but it's likely to be a mild one. Gen Zers and most millennials have no idea what that will look like.

The US has economic downturn on the brain. A growing number of experts see the country entering a recession in late 2022 or 2023 as the Federal Reserve's efforts to cool inflation dramatically slow down economic growth. Financial markets are taking such fears seriously, with stocks staging the biggest sell-off since June 2020 on Wednesday.

Yet economists don't expect the slump to be as damaging as the recessions the youngest workers have already experienced.

The coming downturn will likely be far less dramatic and only see a moderate slowdown in economic activity, Brett Ryan, a senior US economist at Deutsche Bank, told Insider.

That puts younger Americans in an unusual spot. The only recessions they've lived through are the dot-com bubble of the early 2000s, the financial-sector meltdown of the late 2000s, and the once-in-a-century pandemic crash.

While the dot-com recession was relatively mild, the latter two had disastrous effects on many Americans' finances — and were probably the most formative for the country's youngest workers. Gen Zers and millennials could be in for the first ordinary recession of their lives.

"Our views of recession tend to be colored by the last one," Ryan said. "Excluding the pandemic recession, which was the shortest yet deepest ever, people think about 2008 and 2009. We don't see that. We don't see a massively over-levered consumer that's going to have to slam the brakes on spending."

Millennials and Gen Zers don't have much faith in the economy right now. According to a Deloitte survey of 14,808 Gen Zers and 8,412 millennials, just 28% expect the country's economic situation to improve over the next 12 months.

"I feel like we're always bracing for catastrophe," Robbie Barnhart, a 30-year-old millennial pilot, told Insider.

"Truly, we've seen shit hit the fans so many times that this current system that we have is not working out for us, specifically," Barnhart added.

The best historical comparison

So if the coming recession won't resemble 2001, 2008, or 2020, what's the closest comparison? Young Americans looking for clues should study the recession of the early 1990s, Deutsche Bank's Ryan said. That economic decline wasn't a "serious, massive downturn in consumer spending," but instead saw spending pull back in certain categories, he said. Americans ate out less, but spending on necessary services like healthcare held steady.

Today's economy also has some key similarities to the early '90s recession. Both periods saw economic growth slow as the Fed raised interest rates to quell inflation. Americans' sentiments were extraordinarily bleak, with soaring prices overshadowing the otherwise healthy economy. And just as Iraq's invasion of Kuwait lifted gas prices in 1990, Russia's invasion of Ukraine is boosting energy costs and exacerbating the global inflation crisis.

There are some encouraging differences between the economies of the early 1990s and today. The labor market's recovery remains superlative, with the US on track to recoup all lost jobs by mid-summer. The labor shortage continues to boost wages and give workers historic bargaining power. And with worker demand at a record high, companies will be less likely to lay off workers if growth does slow.

Fed Chair Jerome Powell reiterated his confidence in the economy on Tuesday, saying the US is entering the slowdown with an encouraging backdrop.

"Consumer balance sheets are healthy. Businesses are healthy. The banks are well capitalized. So this is a strong economy, and we think it's well-positioned to withstand less accommodative monetary policy," Fed Chair Jerome Powell said Tuesday.

The looming recession, then, is shaping up to be much less harmful than Gen Zers and millennials are used to. After several unprecedented downturns, young Americans are about to learn what a recession usually feels like.

"I feel like our generation, the millennials will take it in stride, probably. I think we're just kind of gonna throw our hands up and go through it," Barnhart said. "I do think that Gen Z — the only way I can put it is that they're gonna solve way more problems than we will."

Are you a millennial or Gen Zer with strong thoughts about a potential recession? Contact these reporters at jkaplan@insider.com and bwinck@insider.com.