Written by Today, we answer the question, are we in a recession? By definition, if you look at the numbers, the answer is yes. To technically be in a recession, you need two quarters of negative GDP growth. Yet, whether we are in a recession is much more complex than a technicality. We dive into the data so you can determine for yourself.
Are we in a recession?
Sometimes being in a recession is different than believing we are in a recession. Due to the fed rate hikes, many are finding it difficult to access money. As interest rates continue to increase, buying a house or funding your business becomes more difficult. If you can’t purchase a home and want a home, you will feel like we are recession. If you need funding for your business and don’t qualify for a loan, you will feel like we are in a recession. As the fed continues to make things more expensive, people will continue to feel pinched.
Yet, the creditworthiness of Americans continues to remain high. This means people still have the money to pay their bills. Also, the stock market grew by 9.1% in the month of July. Which was the best month since November, 2020; which was right before COVID. Not to mention, wages are increasing and the unemployment rate is sitting at 3.6%. In the end, the factors you use to measure the economy will determine whether you believe we are in a recession.
Inflation’s impact
When you look at inflation, people are starting to make really hard decisions. They need to decide whether they can afford the same food. Whether that means they can’t shop organic. Or it means they have to buy smaller quantities. The impact of inflation is felt by most households.
Also, the price of gas has been concerning. The good news is gas prices have been decreasing for the past couple months. Now, this doesn’t mean the price is where it needs to be. However, it does mean the price is going in the right direction.
What does a recession feel like?
When you’re answering the question of whether we are in a recession, it is a personal question. It ultimately comes down to whether you can afford the food and home you want. If you can afford these things, you probably won’t believe we are in a recession. There’s enough data to prove the economy is slowing and is starting to impact the job market. There are dozens of companies laying people off and slowing their hires.
If you take the fed at their word, they plan on increasing rates until they can bring inflation to 2-3%. Most economists believe we need to increase the unemployment rate by 3% to achieve this goal. This lets us know things will get progressively worse. Whether you think we’re just starting a recession or whether you don’t think we’re in a recession.
The job market
With the fed’s willingness to lower inflation by increasing the unemployment rate, the competitiveness of the market will decrease. When the unemployment rate increases, wages will begin to fall. Falling wages will lower demand, which should decrease inflation.
The fed has made it clear they are not concerned about the job market. They don’t care about us maintaining our job growth of 400,000 per month. They are laser focused on inflation and bringing it down. The concern is whether the fed over-shoots their shot and moves us into a deep recession.
Final thoughts
If you were to ask me, “Dre do you believe we are in a recession?” I would say, technically yes, but I lean no. With the employment rate at historical lows and wages high, most of the numbers look good. With that said, I will say things will get worse before they get better. Which means we will probably be a recession by the end of the year.
References:
WSJ: Higher Unemployment Rate Looms as the Fed Fights Inflation
ABC News: Gas prices drop – could soon be less than $4 a gallon
CNBC: Home prices cooled at a record pace in June, according to housing data firm
PIIE: US wages grew at fastest pace in decades in 2021, but prices grew even more