Is the economy in a recession What you call it

Is the economy in a recession? ‘What you call it is less relevant,’ says one economist: Here’s ‘what really matters’

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“We should have an objective definition”

Officially, the NBER defines a recession as “a significant decline in economic activity that is widespread across the economy and lasts longer than a few months.” In fact, the latest quarterly gross domestic product report, which tracks the overall health of the economy, showed a second straight decline this year.

However, if the NBER ultimately declares a recession, it could take months, and it will also consider other considerations such as employment and personal income.

What really matters is that their paychecks don’t go that far.

Tomas Philipson

former Acting Chairman of the White House Economic Advisory Council

That puts the country in a gray area, Philipson said.

“Why do we let an academic group decide?” he said. “We should have an objective definition, not the opinion of an academic committee.”

Consumers are acting like we’re in a recession

For now, consumers should focus on energy price shocks and headline inflation, Philipson added. “It affects Americans in everyday life.”

To that end, the Federal Reserve is taking aggressive steps to curb rising inflation, but “it’s going to take a while to work through,” he said.

“Powell is raising the federal funds rate and is open to raising it again in September,” said Diana Angstgott-Roth, an economics professor at George Washington University and former chief economist at the Labor Department. “He says all the right things.”

But consumers “are paying more for gas and groceries, so they’re having to cut other spending,” Angstgott-Roth said.

“Negative news continues to pile up,” she added. “We are definitely in a recession.”

What’s Next: “The Road to a Soft Landing”

The direction of the labor market will be key in determining future economic conditions, both experts said.

Decreases in consumption are the top priority, noted Philipson. “When companies can’t sell as much as they used to because consumers aren’t buying as much, then they lay off workers.”

On the plus side, “we have twice as many vacancies as unemployed people, so employers aren’t going to be fired as quickly,” says Angstgott-Roth.

“It’s the way to a soft landing,” she said.

3 ways to prepare your finances for a recession

While the effects of record inflation are being felt across the board, each household will experience a setback of varying degrees depending on their income, savings and job security.

Still, there are some universal ways to prepare for a recession, according to Larry Harris, Fred V. Keenan Chair in Finance at the University of Southern California’s Marshall School of Business and former chief economist for the Securities and Exchange Commission.

Here’s his advice:

  • Optimize your spending. “If they expect they’re going to be forced to make cuts, the sooner they do it, the better off they’ll be,” Harris said. This may mean cutting back on some expenses that you only want and really don’t need, such as B. the subscription services you signed up for during the Covid pandemic. If you don’t use it, you lose it.
  • Avoid variable rate debt. Most credit cards have a variable APR, meaning there’s a direct link to the Fed’s benchmark, so anyone with a balance will see their interest costs rise with every move the Fed makes. Homeowners with adjustable rate mortgages or home equity lines of credit tied to the prime rate will also be affected.

    As such, this is a particularly good time to identify your outstanding loans and see if refinancing makes sense. “If there’s an opportunity to refinance at a fixed rate, do it now before interest rates continue to rise,” Harris said.

  • Consider hiding extra money in Series I bonds. These inflation-linked assets, which are backed by the federal government, are nearly risk-free and are paying an annual rate of 9.62% through October, the highest return on record.

    Although there are purchase limits and you can’t tap the money for at least a year, you get a much better return than a savings account or a one-year certificate that pays out less than 2%. (Interest rates on online savings accounts, money market accounts, and certificates of deposit will all rise, but it will take a while for those returns to compete with inflation.)

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