Is a recession knocking on our door?
This is a question that I have been asked both directly and indirectly over the past few weeks. Some folks have even self-determined that the economy is already in a recession.
Let’s start with the basics. What exactly is a recession?
Per the Oxford Dictionary, a recession is defined as, “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two consecutive quarters”.
“Trade and industrial activity” include employment, retail sales, and manufacturing.
So, let’s take a look at these contributing factors.
- Q4 2021 +6.9%
- Q1 2022 “second estimate” -1.5%
- This Second Estimate is slightly negative, but one quarter does not make a trend. Two consecutive quarters of negative GDP would have me looking more closely.
Employment/Unemployment: (BLS JOLTS report)
- The unemployment rate ticks in at a very low 3.80%
- Labor force participation rate at 62.3% (Below 64% is considered “full employment”)
- 4-week moving average of initial claims for unemployment hit a post pandemic low of 179,000
Retail Sales; Personal Consumption Expenditure (BEA.Gov):
- Consumer spending, which accounts for 68% of our entire economy (Source: JP Morgan Guide to the Markets, March 31, 2022) is up +2.70% versus last year
- Year to Date Q1 2022 is +1.80%
Manufacturing: Per The Conference Board LEI report positive contributors include
- Average weekly manufacturing hours
- Manufacturers new orders for nondefense capital goods
- Manufacturers new orders for consumer goods and materials
To summarize, GDP is positive, unemployment is very low, personal consumption is positive, and manufacturing is positive.
All the above are source-cited FACTS. And based on these facts, it seems that a recession is not knocking on our doors as we have not seen a downturn/negative reporting of any of these factors for an extended period of time.
I predict that we do not see a recession in 2022, as the facts just don’t point to it. I continue to keep this information handy and update my thinking as new facts come in. But for now, a recession is not something I am actively anticipating.
I am interested in your thoughts, comments, and questions!
Brittany N. Jarocki, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
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