Latest Economic Report Says US Economy is Not in Recession
- With the current events like the Russia-Ukraine war and the COVID-19 pandemic, the cost of living has increased, leading to lower consumer spending.
- The National Bureau of Economic Research (NBER) released a report containing economic data, concluding GDP had lowered for a second consecutive quarter.
- Although a GDP reduction is typical of a recession, the NBER has decided to hold off on labeling the economy as a recession.
Due to various events such as the Russia-Ukraine war and the ongoing COVID-19 pandemic, there was speculation that the United States (US) economy would be in a recession as there was a significant decline in economic activity.
In a report released by the National Bureau of Economic Research (NBER), it was seen that the GDP level had reduced a second time, which is the usual indicator of a recession. However, despite the data showing a reduction in consumer spending, the NBER has announced they believe the economy is not in a recession, which has caused confusion and controversy.
Typical Definition of Recession
In the past, real Gross Domestic Product (GDP) was the main deciding factor in defining a recession. The real GDP is an inflation-adjusted statistic that measures economic activity. When a country’s economic activity regresses in two consecutive quarters, it is typically considered a recession.
The last recession declared based on real GDP was from February 2020 to April 2020, when the COVID-19 pandemic rattled the US economy and increased the unemployment rate.
With the rising cost of living and the Federal Reserve raising interest rates in the current market, many people have reduced their spending. Consequently, when an increasing portion of the population begins to cut down on their spending, the GDP decreases, possibly leading to a recession.
When it is time to officially declare a recession, the NBER will make a formal announcement. In the past, the reduction of real GDP in two successive quarters has been the usual factor leading to NBER making a recession; however, this time, they are saying the economy is not in a recession, which has led to some controversy.
Why the United States is Not in a Recession
This time, the NBER uses a business cycle analysis to determine when the economy is in a recession. The monthly data of the following factors are being used to understand better whether the US economy is actually in a recession personal income, the labor market, industrial production, and consumer spending.
Federal Reserve Building, Washington DC, USA.
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Looking at these monthly data sets, the NBER has determined that the economy is not yet in a recession, despite its lowering GDP. Although looking at these different factors of the economy helps the NBER make a more informed conclusion, it is rather odd that they have chosen to base their decision on a different set of factors than before.
There have been two consecutive declining GDP quarters in 1949, 1954, 1958, 1970, 1975, 1980, 1982, 1991, 2009, and 2020. Out of these 10 periods, all of them were declared recessions. However, in 2022, despite the two negative consecutive GDP quarters, no recession has been declared.
The decision to use different economic factors than the real GDP has confused many. Still, the NBER states that despite the negative GDP numbers, as the rest of the economic factors are performing well, they have decided not to announce a recession.
Will the United States Experience a Recession Soon?
Although the NBER has not formally announced a recession, some economists are speculating there will be one coming soon. For example, economists from the Berenberg bank believe the US economy will begin stagnating towards the end of 2022 and shrink in the first three quarters of 2023. Although these claims may be speculative, now is the time to think about what to do if a recession does take place.
Financially Protect Yourself with These Tips
With the regressing GDP, it may be an indicator that a recession is imminent. If so, here are two ways that you can prevent yourself from becoming impacted by the current economic climate.
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Spend Less Money
When there is economic uncertainty, it is crucial to be more cautious with your spending. As it is unclear how long a recession will last, the more aware you are about your purchases, the lower your chances of overspending and messing up your financial position.
Recommended Read: Seven Tips to Improve Your Financial Position
One way to help you reduce your chances of overspending is by keeping a spreadsheet of all your purchases. By creating a purchase history, you can realize where the majority of your expenses are going and cut them wherever necessary.
Once you realize where you can cut down on expenses, that money can be used to start/continue your emergency savings.
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Create/Contribute to an Emergency Fund
Anything can happen in during times of economic uncertainty. As a result, start putting money aside in an emergency fund to ensure that you are financially protected.
Recommended Read: 5 Ways to Save Money During a Recession
The emergency fund will contain three to six months' worth of living expenses. So, if money becomes tight, this fund can then be utilized to help pay for any expenses to help reduce the financial burden you may incur.
The Money Wrap-Up
No one knows when the federal government will officially announce a recession. However, as some key pieces of data have shown a reduction in consumer spending, it is important to be on the safe side and prepare for the worst. Therefore, by spending less money and contributing to an emergency fund you can reduce your chances of being impacted by a possible recession.
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