The chaotic stock market, ultra-high interest rates, and the pain of inflation left one question in American minds: are we in recession?
Probably not yet, there are signs of economic weakness. When it turns into a protracted recession and how long the recession lasts are important questions that plague people both inside and outside Wall Street.
Large banks have upgraded their forecasts to reflect the increased likelihood of a recession. Goldman Sachs analysts have increased the chances of a recession next year from 15% to 30%. Bank of America economists predicted a 40% chance of a recession in 2023.
This is a quick guide to what you need to know about a recession and why some people are talking about the next recession right now.
What is a recession?
Simply put, a recession is when an economy stops growing and begins to shrink.
Some say it happens when the value of goods and services produced in a country known as GDP has fallen for two consecutive quarters, or six months.
But in the United States, the National Bureau of Economic Research, a century-old non-profit organization that is widely regarded as a mediator of recession and expansion, has a broader perspective.
According to the bureau The recession A widespread, months-long “significant decline in economic activity.” This usually means not only a reduction in GDP, but also a decrease in income, employment, industrial production and retail sales.
The Bureau’s Business Cycle Dating Committee declares when we are in a recession, which often happens after the recession has already begun. Recessions come in a variety of shapes and sizes. Some are long and some are short. Some do permanent damage, others are easily forgotten.
A recession ends when economic growth recovers.
Why do some people think the recession is coming?
Easy answer: Federal Reserve.
Central banks are trying to slow the economy in order to curb inflation, which has been rising at the fastest pace since 1981. Last week, the Fed announced the biggest interest rate hike since 1994, with a significant rise in borrowing costs probably this year.
The Federal Reserve is “trying to get rid of Band-Aid by raising interest rates quickly,” said Beth Ann Bobino, chief US economist at S & P Global.
“The Fed says we have to move now,” Bobino said. “We have to act hard and move ahead with many rate hikes before things get even more out of control.”
Equity investors are worried that central banks may slow growth too much and cause a recession. And the S & P 500 is already in the bear market. This is the term when stock prices have fallen by more than 20% from their recent peak.
In the housing market, where mortgage rates have skyrocketed to their highest levels since 2008, real estate companies such as Redfin and Compass are firing employees in anticipation of a recession.
Consumers, the US economic engine, are also growing concerned about the economy, which is a bad development. In May, consumer sentiment reached almost the lowest point 11 years..
“If people are depressed and worried about their finances or their purchasing power, they start closing their notebooks,” Bobino said. “The way households prepare for a recession is to save. The downside is that if everyone saves, the economy won’t grow.”
None of this means that a recession will definitely begin. It is important to keep in mind that the employment market remains strong and it is an important pillar of the economy.about 390,000 new jobs Was created in May and has increased for 17 consecutive months, with an unemployment rate of 3.6%, the lowest in nearly half a century.
How often do recessions occur and how long do they last?
People talk about the “business cycle,” the growth period and the recession that follows, but there is little regularity about how the recession occurs.
Some can occur in succession, such as a recession that began and ended in 1980 and the next recession that began the following year. According to the station. Other companies occurred every 10 years, as in the case of the recession that ended in March 1991 and the next recession that began in March 2001 following the collapse of the dot-com company in 2000. ..
On average, the recession since World War II has been going on for over 10 months each. According to NBER.. But, of course, there are some that stand out.
The Great Depression, which burned into the memory of older Americans, began in 1929 and ended four years later. Many economists and historians define it more broadlySaid it would not end until 1941, when the economy was mobilized for the nation’s entry into World War II.
The last two recessions highlight how different they are. The Great Recession lasted 18 months since it began in late 2007 due to the bursting of the housing bubble and the resulting financial crisis. The recession in the midst of the 2020 coronavirus pandemic lasted for only two months, a cruel experience for many, but the shortest ever.
“Covid’s contraction was the most spectacular in terms of the amount and speed of contraction in actual activity,” said Robert, chairman of the National Bureau of Economic Research’s Business Cycle Dating Committee, which is tracking the recession.・ Hall said.
“In April 2020, a significant portion of the workforce was not working.”
Is it possible to prevent a recession?
not really. Try as much as you can. Politicians and government officials can do little to completely prevent a recession.
Even if policy makers could create a completely oiled economy, they would have to influence the way Americans think about the economy. That’s one of the reasons they’re trying to do their best for indicators such as job reports, stock indexes, and holiday retail sales.
Authorities can do several things to mitigate the severity of the recession, for example, through the Fed’s use of monetary policy and the fiscal policies set by lawmakers.
Fiscal policy allows lawmakers to mitigate the effects of the recession. One response may include targeted tax cuts or increased spending on safety net programs such as unemployment insurance that are automatically initiated to stabilize the economy in times of economic downturn.
A more aggressive approach could include Congress approving new spending on infrastructure projects. Stimulate the economy By increasing employment, increasing economic productivity and increasing productivity — but such spending can exacerbate inflation problems, so it may be a difficult proposal for now.
