A Technical Recession… What Does That Mean?
Last week, it was announced that we’re actually in a recession. Is it a technical recession? Just how bad is it?
There’s a lot of different definitions of recession and the most technical one is “two successive quarters with negative GDP”. That’s the technical definition that has been met. However, most definitions include some combination of the following: high interest rates and/or high inflation, along with a drop in GDP and a significant rise in unemployment. We haven’t really run into high interest rates (by historical standards) yet. Without a doubt, in the short term we have high inflation. What we’re hoping is that the Fed’s on this, and this is a speed bump. To be determined of course. Much more important, unemployment at the end of the last quarter was 3.6%. Now in February 2020, we had historically low unemployment. It was 3.5%. So for most people, this is really a very sunny recession. Most people have a job.
In fact, in addition to that, due to the larges of the COVID pandemic, most people, especially at the lower part of the income scale, have more in savings than at any other previous recession in US history. Savings levels are relatively high. The average recession lasts about 10 months. It could go as long as 18. So though we are, yes, in a technical recession, I sometimes ask myself, “Is this a ‘media’ recession?” Is your life in recession? Because for most people, it’s not. We’ve talked about inflation again, and again, and again – there are so many components to it. I’m not going to reiterate the two or three blogs that I’ve already recorded on the topic, but not withstanding inflation, the 24/7 media coverage, for most people, we’re not in a recession. This is certainly not a high growth environment, but the market really proved the rule that I’m very fond of. Up until the last interest rate hike, there was a little bit of a selloff. As soon as the hike came in, there was a bit of a buy.
The markets have actually been up the last month or so. The famous quote is, “Sell on the rumor, buy on the news.” What we’re seeing today is definitely a period of great uncertainty. I don’t mean to minimize it, but it’s not a devastating recession yet. I’m always available for your calls if you have any questions.
[The drop in GDP was 1.6% annualized in the first quarter coupled with
0.9% annualized in the second quarter for an aggregate drop of about 1.3% in the first half
of the year]