Will there be a recession in 2023 – and how long will it last?

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Key learning points

  • Most economists assume that a recession is imminent in 2023
  • Recessions are a regular part of a healthy economy and their duration varies
  • Calling the start and end of a recession is tricky because of the different moving parts of the economy

As soon as economists saw that inflation was not temporary but long-lasting, they began to consider the possibility of a recession. With prices continuing to rise even after the Federal Reserve raised interest rates, expectations of a recession only increased.

Here’s where the economy stands now and whether economists still think a recession is likely — plus how Q.ai can help, whichever way the markets go.

Fear of deepening recession

The Federal Reserve is on a steady path of rising interest rates to take money out of the economy and slow inflation. His efforts are paying off as inflation slowed again to 6.5% in December 2022, according to the consumer price index (CPI). The cost of eating at home increased by 0.2%, while the cost of eating out increased by 0.4%. Gasoline prices fell by 9.4% compared to November.

These numbers make it sound like the economy is recovering, but inflation is still higher than the Federal Reserve would like. As a result, they will continue to keep rates high and possibly raise them even further.

A recession is defined as a slowdown in economic activity that spreads across all sectors of the economy and lasts for a significant period of time. It may be preceded by inflation, but not always. Many economists and financial experts are convinced that a recession will happen in 2023, but some, such as Jamie Dimon, CEO of JP Morgan, are pushing predictions for a recession by the end of 2023, feeling that they have underestimated the severity of the crisis. and have overestimated the potential for a recession. slowdown of the economy. Still, other economists see a 1960s-style recession in the near future.

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The Federal Reserve, on the other hand, still thinks the economy is too strong and would prefer the labor force participation rate to slow or decline. The Fed is trying to create a soft landing for the economy, hoping to avoid what happened in 2008.

How long the recession can last

Predicting the length of a recession is difficult. The National Bureau of Economic Research (NBER) has an official duty to declare a recession, but even the NBER cannot predict how long it will last. The general indicator of a recession is two quarters of negative gross domestic product (GDP) growth, but that is only one indicator. In 2022, there were two quarters of declining real GDP, but other economic indicators showed that the economy was not in recession.

Each recession is unique and the length of each recession varies. The mid-1970s recession lasted 16 months, from November 1973 to March 1975. There were two recessions in the early 1980s, the first lasting six months, from January 1980 to July 1980, and the second from July 1981 to November 1982, 16 months. The Great Recession of 2008 lasted from December 2007 to June 2009, a total of 18 months. Finally, the pandemic recession lasted only two months, from February 2020 to April 2020. Recessions are usually short-lived, but they can feel like they last for years as the economy needs time to shake off the effects.

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This is because it takes time to recover from a recession. While economic indicators can indicate that a recession is over, not every sector of the economy will recover immediately. For example, while the Great Recession lasted only 18 months in 2008, it took until 2015 for the unemployment rate to return to pre-recession levels.

Important economic indicators to watch

As mentioned earlier, there are multiple economic indicators to look at to assess whether we are in a recession. While they are usually reliable indicators and can show slowdowns in all sectors of the economy, they are not always definitive. The NBER looks at several factors before declaring a recession. For the layman, the following economic indicators help predict the near future of certain industries and reflect changes in different parts of the economy. The indicators include:

  • gross domestic product (GDP)
  • Consumer Price Index (CPI)
  • Producer Price Index (PPI)
  • Non-Farm Payrolls
  • Unemployment rate
  • Consumer confidence and consumer sentiment
  • durable goods orders
  • Retail sale

If all these indicators show negative numbers, it can be assumed that the economy is in a recession. There may not be an official statement from the NBER because it takes time for a recession to become visible. However, the general public can use these indicators to determine whether the current state of the economy has turned negative.

How to know the recession is over

Recessions tend to end with a whimper, not a bang. While it’s hard to call a recession, it’s just as hard to announce it’s over. The same problem with the NBER officially calling a recession after it starts also happens at the end. The recession could end and cannot be officially announced for another few months. The best indicator that a recession period has ended is when economic activity returns to an upward trend and stabilizes.

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The main indicators that a recession is over include, but are not limited to, the following:

  • Consumer Price Index (CPI)
  • gross domestic product (GDP)
  • Unemployment rate

When these and other economic indicators are relatively stable and show nominal gains – say annual inflation of 1.0% over a period of time – the recession can be considered over. It is worth noting that all these indicators are not synchronous with each other, but if they turn positive within a few months of each other, it shows that the economy is recovering.

it comes down to

Signs point to a recession in 2023, not just in the US but globally, although many experts remain hopeful it won’t be too severe. This is good news for everyone, as it could mean fewer people lose their jobs and the financial impact on the household will be mild.

As an investor seeking to capitalize on a rising stock market while being wary of the potential danger of a recession, look no further than Q.ai’s Inflation Protection Kit. The Kits offered by Q.ai use artificial intelligence to spot trends and invest accordingly.

Download Q.ai today for access to AI-powered investment strategies.

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