Experts have been talking about a U.S. recession for close to a year now, but with no official announcement, the debate continues. Here is an update based on the most recent economic reports to help better understand where the economy currently sits and if a recession is still on the horizon.
A decline in output by all primary economic signs defines a recession. Specifically, if employment levels decline, customer spending declines, and industries no longer produce as much as they once did. These spaces of economic activity have to be in decline in the long term for there to be an official call, a definitive recession.
Even though the final monthly and quarterly numbers of these activities are used to determine a recession, they’re not always representative of the state of the economy. The National Bureau of Economic Research (NBER) is the agency that calls a recession whenever it notes that economic indicators are showing continued signs of a slowdown.
In the past, the NBER would call it a recession after two consecutive quarters of negative gross domestic product (GDP). What makes things different this time is that other economic signals have once again shown strength in the same era of contraction. This forced the NBER to rethink its situation.
Finally, understand that the NBER says there is no hard and fast rule regarding the measures involved in its decision-making process. In other words, the NBER doesn’t rely solely on three reports or the same set of reports each time the economy weakens. It uses all the information from the following indicators and more to aid its decision-making process.
Gross domestic product performed poorly in the first two quarters of 2022, contracting by -1. 6% in the first quarter and -0. 6% in the second quarter. These losses were reversed in the third quarter of 2022 with an increase of 2. 9%. The effects are due to an increase in exports and customer spending, but are offset by a decrease in real estate investment. The slowdown in the real estate structure reduced GDP by 1. 4%.
This measure is important because it gives us a broad picture of the economy’s overall growth. High GDP signals that the economy is growing quickly, and the Fed may step in to raise interest to slow it down, hoping to curb inflation. A low GDP signals a weak economy and could prompt the Fed to lower interest rates to help spur new growth.
Today, the Federal Reserve finds itself in a tricky scenario: the economy appears to be slowing, according to GDP reports, while inflation remains high.
The unemployment rate in November 2022 remained stable at 3. 7%, staying within the narrow 3. 5% to 3. 7% window it has been in since March this year. In fact, the economy added 263,000 (non-farm) jobs in November, keeping the unemployment rate strong even as many corporations laid off gigantic numbers of workers. It’s possible that the Federal Reserve will simply try to lower the employment rate to curb inflation and GDP growth.
The unemployment rate is important because businesses lay off employees to save on labor costs and improve profitability. When they lay off workers or implement a hiring freeze, their ability to grow usually slows because they have fewer employees to do the work at hand, and there’s less money allocated towards growth activities such as innovation or improving existing products. Businesses become less productive and sell fewer products. In turn, slower business growth slows GDP growth because business output has decreased.
The most recent jobs report from the Bureau of Labor Statistics showed that average hourly earnings increased by 0.6% compared to the previous month. This came in at double what economists were estimating. Year-over-year, average hourly earnings have increased by 5.1%.
An increase in wage expansion means more cash flows into the economy. When consumers have more to spend, the economy grows. When there is a slowdown in wage expansion, consumers simply have less means to spend. When consumers can’t or don’t need to spend, commercial output slows as fewer people buy goods.
What is unique in the current environment is that although wages are rising, they are doing so at a slower pace than the rate of inflation. This means that although other people are making more money from their work, this doesn’t seem to be the case, as the costs they pay for goods are rising faster than their wages.
The current economic indicators of a recession have yet to appear. Economists and financial experts are still debating a pending recession, but it may not be as long or as dire as initially predicted. A recession is still expected by most analysts in 2023. Now we’re all left asking when, how long, and how bad will it be?
The saying “this time is different” takes on its full meaning in today’s context. Even though GDP has slowed for two quarters, the unemployment rate remains low. This is true even though many industries have frozen hiring or laid off, perhaps because large numbers of people who have been laid off find work quickly.
Home workstations or hybrid workplace arrangements that result in less or no travel costs give the painter a raise. Another side to the employment figures is that millions of people have left the world of work during the pandemic and have not yet returned to classic employment. Other losses are due to the pandemic and the arrival of many baby boomers to retirement age.
Another thing at stake is the stimulus money that other people earned during the pandemic. Not only did other people receive cash, but rent and student loan bills were also deferred, allowing many of us to save more. During the months of the pandemic, the traditionally single digit private savings rate reached about 30%, or about $2. 3 trillion. This means that other people are more likely to have the money to keep up with emerging costs today, at least in the short term.
Although many economists still predict that the U. S. economy will enter a recession in 2023, there are signs that this might not happen. Fuel prices are falling, as are the prices of uncooked curtains. The prices of some must-have items are slowly coming back up. Its pre-inflation price levels and supply chain is returning to normal.
Consumers are spending despite retailers’ predictions that the holiday season will be slow. We want to keep an eye on the latest economic reports to see when the economy will enter a recession or if it can evitar. Q. ai takes the guesswork out of investing.
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