Weekend Reading: How Will We Know if We’re in a Recession?

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Weekend reading are we in a recession Weekend reading are we in a recession
Weekend Reading

Some say we’ve already entered one, but the reality is, we won’t truly know if we’re in a recession until it’s already happening.


Not a quick call: When it comes to declaring recessions, a committee known as the National Bureau of Economic Research (NBER) is in charge of making the call. However, in order to do so, they must collect specific data and analysis, and that can often take up to one year. That being said, the unofficial textbook definition of a recession is “two consecutive quarters of declining gross domestic product” (i.e. - The economy is shrinking). But again, this measurement isn’t set in stone, and still includes metrics of the past.

Where we are now: Amidst this waiting period, you might still wonder: Is there a way to see if a recession hits before the NBER makes their call? Currently, many economists agree we aren’t in a recession, as the indicators watched by the NBER remain fairly strong (employment levels, GDP, personal income, retail sales and industrial production). However, the warning signs igniting news headlines right now still remain.

Cause for concern: As the Fed attempts to tame inflation by raising interest rates, they are also trying to tip-toe around sending the labor market into a head spin. Additionally, consumer sentiment has hit record lows, meaning as some believe their jobs might be on the line, spending could also slow down, ultimately leading to less economic growth.

A recession isn’t inevitable: Presently, the unemployment rate is as low as it’s been in the past year. Companies are still seeking workers, and we would need to see more layoffs and cutbacks in order to enter recession territory. If we do experience a recession, however, some economists believe it could be short-lived and mild. The Fed’s actions moving forward and how they impact the job market will ultimately determine how this plays out.

Bottom line: You’ll have to pull out the old crystal ball to know if we are in a recession; And by the time you find out, it will likely be too late to adjust. In that light, we must ask ourselves: Does it really matter in the long-run anyway?