Is the U.S. in a Recession?

Introduction:

Section 1: Defining a Recession

To understand whether the U.S. is currently in a recession, it’s important to first define what a recession entails. Typically, a recession is characterized by several key economic indicators. One of the most common signals is a decline in Gross Domestic Product (GDP), where two consecutive quarters of negative GDP growth often signify a recession. Additionally, a sharp rise in unemployment, coupled with reduced consumer spending and a drop in business investments, points to a weakening economy. Finally, a downturn in industrial production is another marker, as it reflects a contraction in the manufacturing sector. In the sections that follow, we will explore these economic indicators and assess whether the current U.S. economy meets the criteria for a recession.

What is a recession?

“A recession is typically defined as a significant decline in economic activity across the economy, lasting more than a few months. It’s measured by indicators such as GDP, employment rates, consumer spending, and industrial production.”

What are the latest U.S. GDP growth figures for the last two quarters?

Real gross domestic product (GDP) increased at an annual rate of 3.0 percent in the second quarter of 2024, according to the “second” estimate. In the first quarter, real GDP increased 1.4 percent. The increase in the second quarter primarily reflected increases in consumer spending, private inventory investment, and business investment. Imports, which are a subtraction in the calculation of GDP, increased.

Source: https://www.bea.gov/data/gdp/gross-domestic-product

How has the U.S. unemployment rate changed over the last six months?

The unemployment rate in the United States eased to 4.2% in August of 2024 from the October 2021 high of 4.3% in the prior month, aligning with market expectations. The number of unemployed individuals was broadly unchanged from the previous month at 7.1 million. Among the unemployed, permanent job losers were loosely unchanged at 1.7 million, while individuals at a temporary layoff status dropped by 190 thousand to 872 thousand. Additionally, the number of long-term unemployed individuals seeking employment for over 27 weeks was steady at 1.5 million, making up for 21.3% of the unemployed population. Meanwhile, the labor force participation rate remained unchanged from the prior month at 62.7%

 

Source: https://tradingeconomics.com/united-states/unemployment-rate

 

Section 2: Signs the U.S. Economy May Be in Recession

In this section, we’ll examine the current economic data to assess whether the U.S. is showing signs of a recession. A key indicator is GDP decline—if the economy has contracted over multiple quarters, it may signal a downturn. We’ll also look at unemployment trends, as rising joblessness typically accompanies economic slowdowns. Additionally, inflation plays a significant role; high inflation can erode purchasing power, making it more difficult for consumers to maintain spending levels, which drives economic growth. Finally, we’ll analyze stock market volatility, using key indicators like the S&P 500 and Dow Jones to evaluate how financial markets have responded to the current economic environment. Each of these factors offers insights into whether the U.S. is on the verge of or already in a recession.

What is the current inflation rate in the U.S.?

The current annual inflation rate is 2.5%, the lowest since February 2021.
Prices are still 21.2% more expensive since the pandemic-induced recession began in February 2020, with only about 6% of the nearly 400 items the Bureau of Labor Statistics tracks cheaper today.
With inflation nearing the Federal Reserve’s 2 percent target and the job market slowing, U.S. central bankers are about to begin cutting interest rates.

Source: https://www.bankrate.com/banking/federal-reserve/latest-inflation-statistics/

How have major stock indexes like the S&P 500 or Dow Jones performed in the last year?

The major stock indexes, such as the S&P 500 and Dow Jones Industrial Average, have shown mixed performance over the past year. As of August 2024, the Dow 30 finished up 1.8%, the S&P 500 finished up 2.3%, and the Nasdaq finished up 0.6% from July. However, when adjusted for inflation, the real month-over-month changes were 1.6% for the Dow 30, 2.2% for the S&P 500, and 0.5% for the Nasdaq.

Source: https://www.advisorperspectives.com/dshort/updates/2024/09/03/the-s-p-500-dow-and-nasdaq-since-their-2000-highs

Section 3: Comparing the Current Trends with Past Recessions

To better understand the current economic situation, it’s useful to compare today’s trends with previous recessions, such as the 2008 financial crisis and the 2020 COVID-19-induced recession. Each of these periods featured a sharp decline in economic activity, marked by significant GDP contraction, rising unemployment, and volatility in the financial markets. By analyzing how the present conditions—such as GDP growth, inflation, and unemployment—stack up against these past downturns, we can gain insight into whether the U.S. is heading toward a similar economic slump or if the current recovery is more resilient.

How does the current economic situation compare to previous recessions in terms of GDP contraction, unemployment, and inflation?

The current economic situation, specifically the COVID-19 induced recession, has seen a sharper decline in GDP contraction compared to previous recessions, particularly the Great Depression.

Here’s a breakdown from the passage:

GDP Contraction: The passage states that the cumulative decline in economic activity during the first two quarters of the 2020 recession was somewhat larger than the decline during the first two quarters of the Great Depression (Figure 1).  

Unemployment: The unemployment rate in the 2020 recession rose sharply, but not to the extent of the Great Depression. The unemployment rate rose from 3.5% in February to nearly 15% in April before falling back to 11.1% in June (Figure 3). In contrast, the unemployment rate during the Great Depression rose gradually at first but reached a staggering 25% in 1933 (Figure 3).

Inflation: The price level, as measured by the Consumer Price Index (CPI), fell considerably during the Great Depression (Figure 4). However, the CPI in the 2020 recession has fallen slightly but is forecast to recover and gradually rise (Figure 4).

In conclusion, while the initial economic decline in 2020 was severe, it was shorter-lived compared to the Great Depression. The recovery pace and its sustainability remain uncertain, with the pandemic’s trajectory playing a significant role.

Source: https://research.stlouisfed.org/publications/economic-synopses/2020/08/12/comparing-the-covid-19-recession-with-the-great-depression

Section 4: Expert Opinions on U.S. Recession Risks

In this section, we’ll explore the insights of leading economists, central bank officials, and financial institutions to assess the likelihood of a recession in the U.S. Opinions vary widely among experts. While some, like those at the Federal Reserve, have raised concerns about economic risks, others from top financial firms remain more optimistic about sustained growth. For example, certain economists predict a potential downturn due to rising inflation and slowed consumer spending, while others argue that strong GDP growth and a resilient job market suggest otherwise. By examining these perspectives, we can better understand whether the U.S. is likely to face a recession in the near future.

What are economic experts from institutions like the Federal Reserve or top financial firms saying about the U.S. recession risks?

The Federal Reserve and top financial firms have expressed varying opinions on the risk of a U.S. recession. While some experts have expressed concerns and predicted a potential downturn, others have downplayed these risks.

Here are some key points from the text:

• The New York Fed has predicted a 56% probability of a recession by July 2025 based on an indicator of 10-year Treasuries being below 3-month Treasuries.
• The Conference Board has predicted that the U.S. is likely not on the cusp of a recession, forecasting continued positive GDP growth.
• The KPMG U.S. CEO Outlook Pulse Survey found that 87% of CEOs are confident in the U.S. economy’s growth prospects.
• Jamie Dimon of JP Morgan Chase has expressed concern about the risk of a recession.
• David Mericle of Goldman Sachs Research has downplayed recession fears, stating that the 12-month recession probability is currently 25%.

Overall, there is a divergence of views among experts regarding the likelihood of a U.S. recession. While some see a growing risk, others remain optimistic about the economy’s prospects.

Source: https://www.businessinsider.com/personal-finance/investing/are-we-in-a-recession

Conclusion:

The U.S. economy is currently experiencing a complex set of dynamics that suggest both recovery and lingering challenges. The latest GDP growth, which reached 3.0% in the second quarter of 2024, reflects a rebound in economic activity. Similarly, the unemployment rate has slightly improved, dropping to 4.2%. Yet, long-term unemployment and modest labor force participation raise concerns about the strength of the recovery.

🇺🇸 UNREALISED LOSSES BY FDIC-BACKED INSTITUTIONS

<- 2008 crisis vs Now -> pic.twitter.com/9FXcVjPbKI

— Radar🚨 (@RadarHits) September 2, 2024

Inflation, though cooled to 2.5%, remains significantly higher compared to pre-pandemic levels, with prices still elevated by over 21% since 2020. Stock market performance has shown modest gains, but inflation-adjusted returns indicate that growth has been more subdued.

When compared to past recessions, particularly the Great Depression and the 2020 pandemic-induced recession, today’s economic situation appears less severe in terms of unemployment and inflation. The rapid contraction in GDP in 2020 was sharper than in previous downturns, but the recovery was faster. Still, experts are divided on whether the U.S. will face another recession soon. While institutions like the New York Fed predict a 56% chance of recession by 2025, others, such as the Conference Board and top financial firms, remain optimistic about continued growth.

This yield curve inversion is WORSE than 1929 and 2008

Buckle up pic.twitter.com/u3GEu1woDQ

— Game of Trades (@GameofTrades_) September 5, 2024

In conclusion, while the U.S. economy shows signs of resilience, uncertainties remain. The trajectory of inflation, the labor market, and global economic conditions will likely determine whether the nation can avoid another downturn in the near future.

Why not take a moment to hear what Taylor has to say in this video.. 🙂