A Different Perspective on Recessions

A Different Perspective on Recessions

August 23, 2022
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Recently, there has been a lot of press and debate about whether or not we are currently in an economic recession. What has caused this debate, and is it important to know if we are in a recession or not?

Recessions Explained

A common definition of a recession that many have used over the years is two consecutive quarters of negative GDP growth. But the National Bureau of Economic Research (NBER), which is the official arbiter of recessions, claims it’s much more expansive and complicated than that: “The NBER's traditional definition of a recession is that it is a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”1

The reason for all of the debate right now is that we have had two consecutive quarters of negative GDP growth, but some other economic metrics are still at healthy levels. For example, the unemployment rate came in at 3.5% in the most recent July jobs report. JPMorgan’s Weekly Market Recap on August 8 said that “the labor market has now hit two milestones, having recovered all the payroll jobs lost in the pandemic recession and achieving the lowest unemployment rate (3.46% to two decimals) since May 1969…”

When people think of a recession, they often think about the Great Recession (2007-2009) or the Covid Recession (2020) and become very concerned. But not all recessions are created equally. Some are much more severe than others. If we are currently in one, we see it as being a lot less severe than the most recent recessions we have been through.

Recessions from a Different Point of View

So are we in a recession? By some metrics and definitions, yes. By others, no. People can debate about this all day long because there are obviously many factors at play and large economies are very complex. But in the end, whether or not we are in a recession is not the most important question to be answered right now. I would argue a more relevant and important question is this, “Are you in a personal recession?”

What do I mean by that? The United States may or may not be in a recession, but what about you and your family personally? Have you lost your job? Has your income been altered? How has recent high inflation affected you the most? Have you continued investing? Are you still on track for your goals? If you’re retired, how have your income sources and spending changed, if at all? Your answers to these questions may be very different than your neighbor, your extended family, or the broader economy in general. Focusing on what you can control is the only thing you can really do, and so spending time and energy figuring out if the country is in a technical recession may not be the most important thing you can do right now. There are many things that you can’t control, no matter how bad you want them to change (trust me, I wish I had more hair).

If you feel like addressing your concerns about recessions and your personal situations, we are here to help you. We would love to review your plans, goals, and outlook. We can also evaluate potential opportunities for you at this time, such as Roth conversions, dollar-cost averaging, tax-loss harvesting, and investing larger sums when the market is down. We understand and expect there to be rocky times in everyone’s lives at one point or another. That is why we hope to constantly meet and review, recommit, and if necessary, revise plans for you and your family.

Feel free to reach out to us by calling or texting our office phone at 801-268-2300.

 

Sincerely,

Christian Covey, Chief Investment Officer

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1. https://www.nber.org/research/business-cycle-dating/business-cycle-dating-procedure-frequently-asked-questions#:~:text=A%3A%20The%20NBER's%20traditional%20definition,more%20than%20a%20few%20months

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IMPORTANT DISCLOSURES

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The opinions expressed in this material do not necessarily reflect the views of LPL Financial.