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Are We In a Recession?

A recession used to be defined as two consecutive quarters of negative Gross Domestic Production (GDP) growth, as measured by the Bureau of Economic Analysis (BEA).

While that hard and fast rule seems like a clear-cut way to define a recession, the National Bureau of Economic Research (NBER) is the governmental organization that actually decides whether or not we are in a recession. The NBER makes that call when it sees a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.”

To make that determination the NBER looks at a number of different variables that include income, employment, personal consumption, and industrial production. The challenge with using a model to determine economic activity, as opposed to a hard and fast rule, is that models are highly subjective to the way they are designed and how the variables are weighed.

Below are additional indicators used by the NBER to measure economic activity.

  1. The stock market: Besides energy, every sector of the S&P 500 is down from the beginning of the year, and the S&P 500 experienced its worst 6 month start to a year since 1970.

  2. Consumer sentiment: Per the University of Michigan, consumer sentiment fell to its lowest point since recording data in 1952, as nearly 50% of respondents stated inflation is eroding their standard of living.

  3. The bond market: Possibly one of the most talked about recession signs is the yield curve. The yield curve charts the interest rates on various bonds issued by the U.S. government. Typically, bond investors expect to be paid higher rates when locking up their money for longer terms. However, an inversion occurs when short-term rates are higher than long-term rates. It should be noted that nearly every recession in the United States has been preceded by a yield curve inversion, and the yield curve has been slightly inverted since early July.

While we can all agree that the economy is slowing (because it’s in the data!), there is one variable in the economy that is still holding up. And that variable is employment.

According to Bureau of Labor Statistics (BLS), U.S. employers added 372,000 jobs in June. (source: and today’s employment levels are near the pre-pandemic levels we saw in February of 2020.

So the stock market is struggling and economic activity is decelerating, but the job market remains healthy. Unemployment is near 3.6%.

“If the economy is in a recession, employers have not seemed to notice,“ Wells Fargo economists wrote last month. That’s because the demand for labor remains high while the supply of labor remains limited.

According to Deutsche Bank’s analysis of recessions since 1939, the first month of a recession on average sees a decline in jobs. And that is not happening today.

And what about the Fed?

Until the Fed sees clear evidence that inflation is coming down, we should expect the Fed to continue to tap the brakes on the economy by tightening monetary policy (raising interest rates, cutting the money supply, etc).

The longer the Fed continues to try to bring down inflation, the more likely we are to see people lose jobs and families reign in spending.

So are we in a recession?

According to the National Bureau of Economic Research? No.

According to the old hard and fast rule? Yes.

According to Ronald Reagan? It depends! "Recession is when your neighbor loses his job. Depression is when you lose yours. And recovery is when Jimmy Carter loses his." ― Ronald Reagan

The better solution to asking "are we in a recession?" is making sure that you have a 10/10 confidence level that your financial goals and objectives will be met, no matter what state the economy is.

To find out how to work with us to achieve that standard of living, schedule a meeting with us today.

This article is a general communication being provided for informational and educational purposes only and is not meant to be taken as tax advice, investment advice or a recommendation for any specific investment product or strategy. The information contained herein does not take your financial situation, investment objective or risk tolerance into consideration. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel. Any examples are hypothetical and for illustration purposes only. All investments involve risk and can lose value, the market value and income from investments may fluctuate in amounts greater than the market. All information discussed herein is current only as of the date of publication and is subject to change at any time without notice. Forecasts may not be realized due to a multitude of factors, including but not limited to, changes in economic conditions, corporate profitability, geopolitical conditions, inflation or US tax policy. This material has been obtained from sources believed to be reliable, but its accuracy, completeness and interpretation cannot be guaranteed.

LEGAL, INVESTMENT AND TAX NOTICE. This information is not intended to be and should not be treated as legal, investment, accounting or tax advice.


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