Are We in a Recession?
/It depends on who you ask. Even the experts can’t agree on the answer to this question. We’ve had two quarters in a row of negative U.S. GDP growth, which indicates to many that we have entered recession territory. However, the official determination of whether or not we are in a recession comes from the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER). This is a nonprofit, nonpartisan, private research group that was founded in 1920 with a goal of disseminating factual information based on analysis of the U.S. economy. Determinations of the business cycle are completed retroactively and typically well after we’ve entered or finished a phase in the cycle.
NBER’s official definition of a recession is much broader and encompasses more than just U.S. GDP figures. They describe a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” The definition is vague to account for the varying circumstances that accompany each period of recession. Per NBER, the committee reviews more than just GDP to determine if a recession has taken or is taking place. In addition to this one piece of data, the committee also considers data related to industrial production, employment, real personal consumption expenditures, and more.
There is no doubt inflation is having an effect on our economy. It is leading to confusion about the status of the current business cycle among investors and experts alike. Low unemployment numbers and continued consumer spending are indicators that the economy continues to perform well. In contrast, high inventories at retailers and declining U.S. GDP figures are indicators that we are in a recession. No one truly knows until we can look in the rearview mirror and the numbers tell the story. All this being said, we likely won’t have an official announcement about whether or not we are in a recession from NBER until all the data has been thoroughly reviewed and they reach a scientific consensus, which could come weeks or months down the road.
- Margaret Gooley, CFP®, CDFA®, Worley Erhart-Graves Financial Advisors
