Is there a straightforward definition of recession? Unfortunately, when you leave it to a group of economists you’re going to find some differences of opinion. For instance, one common definition of a recession is two consecutive quarters of negative GDP. Second quarter numbers were just released showing -0.9%. Taking into account that the first quarter was -1.6%, if you applied that common definition you would conclude that we are in a recession. But are we? When you look at other factors it is less clear, and some data would support we are not in a recession. Let's dive in a little on some other factors.
First off, if you listen to the newscasters reading their headlines from teleprompters, you may be convinced. Seems to me they are using their thesauruses and plugging in words like "shocking", "alarming", "massive hike", “crushing inflation" just to name a few. They do that for storms too! I start with this point, as I know the news enters our homes. And while fear sells, I invite you to be mindful. Now onto more reliable indicators such as housing, personal income, consumer spending and unemployment.
After years of low interest rates and substantial increases in home values, the housing market is cooling somewhat and it appears that may continue. This alone could be supportive of recession. On the other side, personal income and consumer spending have continued to show signs of increasing. Even with interest rates rising and high grocery and gas prices, the consumer is still spending. I have my own theory that after the two years of Covid people are saying "the hell with it, we’re going to spend our money regardless". But that’s just my opinion. Then there’s unemployment which is very low at 3.6%. Spending and employment data like this is far from recessionary. Feel free to read that twice.
So here we have two negative quarters and the slowdown in housing being supportive of recession and personal income, consumer spending and unemployment not supporting recession.
So which one is it? Or does the label matter at this point? Right now, I think the label is less important.
In the meantime, we will continue to monitor and communicate as things unfold. And I will close with a reminder that even if we are in a recession, we have been through them before and will again and all the while our clients have traveled, sent children to college, bought homes, second homes, cars, boats and retired.
Calmer, more informed heads will prevail.