As of March 2023, the US economy is not currently in a textbook recession. A recession is generally defined as a period of significant economic decline, typically marked by a decrease in GDP, employment rates, and consumer spending. While there have been fluctuations in some economic indicators in recent years, the overall trend has been one of steady growth.
One of the most commonly used indicators to determine whether or not the economy is in a recession is the Gross Domestic Product (GDP). The GDP measures the total value of goods and services produced within a country over a given period of time. In the fourth quarter of 2022, the US GDP grew at an annualized rate of 4.4%, which is above the historical average of around 2%.
Another important factor is the unemployment rate. A high unemployment rate can be a sign of a recession, as it suggests that many people are out of work and struggling financially. However, as of February 2023, the US unemployment rate was at 3.8%, which is near its pre-pandemic level and well below the peak of 14.8% in April 2020.
Consumer spending is another key indicator of economic health. In a recession, people tend to cut back on their spending, which can lead to a further decline in economic activity. However, consumer spending has been strong in recent years. Retail sales rose 1.8% in January 2023, which is the most significant gain in four months.
There are, however, some concerns that could potentially lead to a future recession. One of the most significant is inflation. Inflation is the rate at which the general level of prices for goods and services is rising. Inflation can erode the value of money and lead to a decrease in purchasing power, leading to a decline in economic activity. In the United States, inflation has exceeded the Federal Reserve's target of 2% for several months. If inflation continues to rise, it could eventually lead to a recession as the Federal Reserve remains dedicated to slowing the economy to curb inflation. A pledge they have made very clear.
Lastly, if we look at the yield curve, there has been a significant inversion that often indicates a pending recession. Many suggest that the yield curve is the number one predictor of recession, and the latest inversion provides an early signal that it is on the horizon. Couple this with the instability in trade relations with major players like China; there is certainly cause for concern.
However, all of this taken together still doesn't account for the fact that we are exiting one of our generation's most significant black swan events. The COVID-19 pandemic changed everything. Governments injected cash to the tune of trillions in a short period, and it is undoubtedly affecting current economic conditions. This response is likely the cause of such mixed indicators making forecasting nearly impossible at present.
Overall, while there are some concerns about the future of the US economy, the current state of the economy suggests that the country is not in a recession. The GDP is growing, unemployment is low, and consumer spending is strong. While potential threats are on the horizon, the economy has shown resilience in the face of these challenges. The Federal Reserve is likely to continue to drive rates up to slow inflation which certainly will continue to affect real estate markets; however, at this time, it's unclear if adjacent markets will feel the impact. All in all, this suggests the current economic conditions are more about feeling versus technical indicators. So what do you feel? Are you optimistic that the economy will continue flourishing or is it already declining, and our indicators haven't caught up?
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