Will there be another recession in the US? Pay attention to these warning signs | family finance
After growing for six straight quarters in the wake of the severe short recession caused by the Covid virus in early 2020, US GDP fell 1.4% in the first quarter of this year. The decline, which surprised some economists, is just another sign that the US economy is starting to slow.
This isn’t necessarily a bad thing.
“The benefit of slower economic growth should be lower inflation with lower demand for goods and services,” says Carl Ludvigson, managing director at Bel Air Investment Advisors in Los Angeles. “The danger is that economic growth slows down too much, leading to a recession.”
This is a finding that worries a growing number of Americans. Nearly eight in 10 Americans surveyed by Allianz say they are concerned that current global tensions will lead to a recession, and less than half expect the economy to improve this year. Economists polled by The Wall Street Journal Last month it estimated the probability of a recession, or correction, in the next 12 months at 28%.
Definitions of a recession vary, but a period of two consecutive quarters of negative economic growth is usually considered a recession. However, by this definition, it is often difficult to recognize a recession until it has actually been under control for six months, and there have been times when the National Bureau of Economic Research, the organization that officially declares a recession, has done so without two negative quarters. . The Spring 2020 period following the onset of the coronavirus pandemic is an example of such a case.
Economists say there are other indicators to watch for whether a recession is coming (or has already begun) in 2022. Look for:
- High inflation.
- negative yield curve.
- geopolitical uncertainty.
Periods of high inflation often precede recessions. With prices rising, consumers – the economic engine of the US economy – can’t spend much. This can create a chain reaction of fewer retail sales and fewer manufacturing orders, all of which often signal a recession.
How does it look now: Consumer prices are up 8.3% from a year ago, according to the Consumer Price Index released in May. These numbers come on the heels of an 8.5% year-over-year increase in March which was the highest rate increase in 40 years.
negative yield curve
The yield curve is a measure of investors’ return on bonds of different durations, or maturities. When a bond with a shorter term (such as a two-year Treasury bond) has a higher yield than a longer-term bond (such as a 10-year Treasury bond), this is a sign that bond investors may have doubts about the direction of the US economy.
How does it look now: The yield curve was flat, and briefly fell into negative territory in early April.
In the global economy, instability in one part of the world can have multiplier economic effects on other countries.
How does it look now: Between the war in Ukraine and ongoing concerns about the spread and boom of the coronavirus, there is widespread uncertainty about international trade. Meanwhile, sanctions against Russia could push gas prices higher. The World Bank cut its economic forecast for the global economy from 4.1% to 3.2% for this year.
It is also important to note that economic slowdowns do not always lead to recession, and that economic recessions are a normal part of modern economic cycles. While many companies are going out of business in a recession, others are thriving and growing in a recovery period.
“None of these economic indicators are conclusive,” says Peter Earle, a research fellow at the American Institute for Economic Research, a not-for-profit academic think tank. “If you look at the history of economic indicators, whether they are technical or those that are easy to see, there have been many times they have gone up and nothing has happened.”
There are also some positive signs in the economy, including a low unemployment rate, high wages and relatively resilient consumer spending.
While the thought of a recession can be intimidating, there are some steps you can take now to prepare for the possibility of a recession. By setting up an emergency fund (ideally, the equivalent of three to six months of expenses) and focusing on paying off debt, if possible, you can make it easier to weather the storm.