Are we in a recession?
U.S. economic production fell 0.9% in the second quarter of the year, the second consecutive drop. Most economists define two consecutive quarterly declines in gross domestic product (GDP) a technical recession. There’s a good reason for that, the last 10 times the U.S. economy shrank for two consecutive quarters, the U.S. was declared to be in a recession. However, massive job losses occurred in most of those recessions and that’s not happening now. The U.S. is adding jobs at a massive scale, 2.2 million new jobs since January. The government relies on a panel of economists at the National Bureau of Economic Research to declare and date the beginning and end of recessions. Their criteria go beyond GDP and include many more factors like the addition of new jobs.
Fed Chairman Jerome Powell raised rates 0.75% again to slow inflation and help supply lines. However, he’s walking a narrow line. The last 11 times the Fed raised rates, the Fed only successfully avoided a recession three times.
So, are we in a recession? If we aren’t, the odds are favorable one is on the horizon. My advice is to act like we are in a recession so you are prepared. Don’t make big purchases, don’t borrow and save as much as possible. The market appears to have priced in a recession and hopefully the market is finally near the bottom.
