Recession and the U.S. Economy

There is always a recession in the future. The reality is that the U.S. economy could be in a recession now.

Inflation is too high and interest rate adjustments are required, says Esther George, Kansas City Federal Reserve President. She sees consumers taking actions to combat inflation and those actions, such as not buying appetizers while dining out, are apparent to the Federal Reserve. Thus, the economic data shows that there are already signs of a pullback in consumer spending…just look at Walmart, Target and Dollar Tree sales and earnings.

There is always a chance of a recession in the future, no matter what the current economic data look like or current consumer spending is doing. The question of whether the economy slips into a recession is basically a “not if, but when“ proposition.

It’s become obvious that a recession will come to the United States economy in the future, but the essential question is when. It is important to keep in mind that recessions are a normal and unavoidable part of the economic business cycle.

A recession is a significant decline in economic activity that lasts for months or even years, according to Forbes. Experts declare a recession when a nation’s economy experiences negative gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period of time.

The National Bureau of Economic Research (NBER) generally defines the starting and ending dates of U.S. economic recessions. NBER’s definition of a recession is “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

The reality is that the U.S. economy could be in a recession now.

The definition of a recession is two consecutive quarters of negative gross domestic product growth. First-quarter GDP decreased at an annual rate of 1.4%. Should that happen in the second quarter, that would technically place the economy in recession.

Recessions usually come from demand weakness, but supply problems can also trigger a downturn.

Consumer demand for goods and services continues to be strong, according to the Federal Reserve. Consumers have plenty of money, thanks to past earnings, fiscal stimulus payments and extra unemployment insurance. They have paid down their credit card balances. Even though they also increased their car loans outstanding as they upgraded their rides, their general condition is good. Employment will increase thanks to the spending, reinforcing the income gains that enable expenditures. Supply restraints are fueling current accelerating inflation.

The economy reacts with a time lag of about one year, plus or minus.

The greatest recession risk in the near term is that the Federal Reserve realizes that much of the recent decades high inflation is long-lasting rather than transitory. They will then ‘hit the brakes’ to control inflation by raising interest rates. Because of the time lag, the Fed may decide to raise interest rates faster, triggering a recession.

“Inflation is worst than a recession, and inflation will take us into a recession,” states Liz Young, SoFi Head of Investment Strategy.

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