Why we may or may not be in a recession

Kojo A. Quartey
·3 min read
Kojo A. Quartey, president of Monroe County Community College
Kojo A. Quartey, president of Monroe County Community College

So are we in a recession or not? Well, a few weeks ago, I predicted that fears of a recession were greatly exaggerated. While I could be wrong, I am not wrong yet. Now, let’s take an objective look at the factors in play here.

First, what is a recession? According to economists, a recession occurs when gross domestic product (GDP) declines for two consecutive quarters. This just happened. But hold your horses, do not declare a recession just yet. That job belongs to a group of eight economists, who serve on the Business Cycle Dating Committee, part of the National Bureau of Economic Research (NBER), who are charged with this official responsibility. Surprisingly, this group is not even part of the government; they are a private nonprofit. According to them, there’s no steadfast rule governing what defines a recession in the United States and they are yet to use the "recession" label. According to an article by Jessica Dickler on CNBC.com, they say a recession “involves a significant decline in economic activity that is spread across the economy and lasts more than a few months."

Now, let’s see if we can sort this out for ourselves.

On one hand, GDP, the broadest measure of economic output, declined for two consecutive quarters, raising recessionary concerns. On the other hand, the job market remains very strong, telling us the economy is still robust. Ten out of the last 10 times the U.S. economy shrank for two consecutive quarters, the U.S. economy was declared to be in a recession. But massive job losses occurred during seven out of the past seven recessions, and that's not happening now.

So are we in a recession? Not likely. Here are reasons why we may or may not be.

Why we may not be:

  • Consumer spending is still rising as people spend more, but that could be due to higher prices (inflation).

  • Consumer confidence rose by more than forecasted in August to the highest since May, suggesting that Americans are growing more optimistic about the economy amid falling gas prices. The Conference Board’s index increased to 103.2 reading in July, the first increase in four months. The median forecast in a Bloomberg survey of economists called for a rise to 98.

  • Supply chain issues are mostly resolved to the point where some companies have stockpiles of inventory, which means they could lower prices to get rid of them.

  • Gas prices are beginning to decline and have done so for the past several weeks.

Why we may be:

  • Inflation is at historic highs and eroding consumer spending power. U.S. consumer prices surged to a new pandemic-era peak in June, jumping by 9.1% year over year, according to the most recent data from the Bureau of Labor Statistics.

  • Savings: Money is tight in many U.S. households. New data from the Bureau of Economic Analysis shows Americans are saving much less than they did a year ago. In May, Americans saved just 5.4% of disposable personal income, down from 12.4% year over year.

  • Interest rate hikes. To counter inflation, the Federal Reserve has hiked interest rates. Higher rates keep prices in check but slow the economy down and may cause a recession.

Other factors at play include the volatility of the stock market, swings in consumer confidence, shocks caused by international incidents such as the war in Ukraine, the pandemic, and unforeseen erratic weather and natural disasters. There is so much uncertainty, but all we can do is hope for the best.

Kojo Quartey is president of Monroe County Community College and an economist. He may be reached at kquartey@monroeccc.edu.

This article originally appeared on The Monroe News: Kojo Quartey: Why we may or may not be in a recession