Four Factors Behind a Possible 2022 U.S. Recession
- Currently, due to various domestic and international events going on right now, the U.S. economy is performing poorly.
- Due to the poor economic conditions, some speculate that a recession could occur soon.
- Below is a list of factors that could cause a recession, and how to overcome this obstacle financially.
Currently, due to various domestic and international events going on right now, the United States (U.S.) economy is performing poorly. From high gas prices to even higher inflation rates, some people are speculating the worst.
The National Bureau of Economic Research (NBER) is the sole organization that is responsible for deciding the beginning and end of the recession. Though nothing has been confirmed yet, some people believe there will be an economic recession soon, as the current U.S. economy is showing signs of decline.
What is a Recession?
A recession is defined as when the GDP (Gross Domestic Product) of a country decreases in two consecutive quarters. The GDP determines the value of the goods and services produced in one year. Therefore, when people have higher levels of disposable income, they can afford to spend more money and increase a country’s GDP.
Unfortunately, there comes a time when a consumer’s disposable income lowers due to changing economic conditions. When consumer spending decreases, the value of goods and services also drops, resulting in a reduction in GDP. However, if an economy has one-quarter of declining GDP, it cannot be declared a recession yet.
If there are two consecutive quarters of decreasing GDP, then a country’s economy is officially in recession. In the case of the U.S. economy, the first quarter of 2022 saw a decrease in GDP, and the economic activity of the second quarter will be announced by the NBER.
Contributing Factors to Cause a U.S. Recession
Although the NBER hasn’t declared the U.S. to officially be in a recession, several factors could cause a potential economic decline.
War in Ukraine
The first factor that could lead to a 2022 U.S. recession is the invasion of Ukraine by Russia. The brutal actions of Russia in Ukraine had severe repercussions on the global economy. Russia supplies most of Europe’s and a large portion of the U.S.’s oil consumption, and as many countries disapproved of Russia’s actions, they imposed sanctions against them.
These sanctions ultimately impacted consumer spending in Europe and North America, as when the cost of gas increased, so did the price of everything else.
The initial lockdowns in China showed this virus could have major economic consequences, and it did. The COVID-19 pandemic caused the stock market to crash as many people were liquidating their assets and using their money on necessities as the future was uncertain. Therefore, not only did the COVID-19 pandemic startle Wall Street and other investors to sell their investments, but it also caused inflation rates to increase.
The COVID-19 pandemic caused many people to be jobless for a period of time due to the lockdowns imposed by the government. These lockdowns halted economic growth initially as only essential services were being provided, leaving those out of work struggling to pay for basic living necessities.
With the rising unemployment rate, the government implemented COVID-19 relief programs to stimulate the economy, which caused high inflation as people across the country were attaining money from the government like unemployment checks and stimulus checks.
The current housing market saw a rise in price at the beginning of the pandemic. Previously, low mortgage rates meant more people could secure a loan and get a mortgage. However, the higher demand for housing caused by the pandemic and the fixed number of homes on the market increased prices, leading to many not being able to purchase a home and having to look at other living alternatives, such as renting.
Although the Federal Reserve, otherwise known as the Central Bank, has taken steps to ensure the economy is heading in the right direction by raising interest rates by half a percentage point, implementing this change may have been a bit too late. The interest rate hike could help cool down the market, but it is uncertain whether it will help prevent a potential crash.
How to Financially Overcome a Recession
Be More Frugal with Purchases
During times of uncertainty, every penny counts; and until an official announcement is made by the NBER, try to be more cautious with your purchases. Now is the time to go over your purchase history and separate your needs from your wants. To be on the safe side, reduce the amount of money you spend on items you want, so you have more money left over in case a financial emergency arises.
Have an Emergency Fund
The future is unpredictable, and anything can happen at any moment. Therefore, it is crucial to prepare yourself for the unexpected financially; one way to do this is by regularly putting money into an emergency fund.
This emergency fund will contain three to six months' worth of living expenses and will be used when your regular income cannot cover the costs. Putting money away for emergencies will help you overcome financially difficult times a bit easier.
The Money Wrap-Up
During times of uncertainty, it’s important to maximize your talents and skills to help you financially thrive. There are plenty of ways to bring in more income, whether it’s having a side hustle or a second job. Always try to have more than one source of income if you have the capacity to do so. By having multiple revenue streams, you are mitigating the impact a possible recession could have on your financial situation.