IS THE ECONOMY REALLY IN RECESSION?
The answer matters, especially if you've got a job or a 401(k). The R word is feared for good reason: It's a synonym for tough times. That's why investors' biggest fear is that the inflation-fighting Federal Reserve will go too far with its interest rate hikes, choke the life out of the economy and inflict further damage on markets.
RECESSION? YES AND NO
By one common definition (two straight quarters of economic contraction measured by gross domestic product), the nation is already in a recession. GDP shrunk 0.9% in the second quarter, after a 1.6% decrease in the first quarter.
But the call is not official just yet. The final say as to whether the U.S. is in recession falls to the National Bureau of Economic Research, a private, nonpartisan organization that takes into account a broader array of data points when determining the start (and end) of recessions. For now, the NBER is in wait-and-watch mode. The monthly indicators it parses, such as employment, personal income and spending, industrial production, and retail sales, have not yet raised red flags. The economy created 3.3 million jobs in the first seven months of 2022. Retail sales haven't rolled over, either, rising 1% in June. "It's really difficult to call what we're experiencing right now a recession," says Cliff Hodge, chief investment officer for Cornerstone Wealth.
That's not to say the economy isn't showing signs of slowing or feeling the pinch of rate hikes. (The Fed's key interest rate has increased from zero at the start of the year to 2.5% and is expected to climb higher.) Housing has cooled, businesses are stocking less inventory, first-time unemployment claims have ticked up, and industrial production turned negative in June for the first time this year. Goldman Sachs' analysts say there is a 50% chance of a recession in the next 24 months.
This story is from the October 2022 edition of Kiplinger's Personal Finance.
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This story is from the October 2022 edition of Kiplinger's Personal Finance.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
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