Economists are conflicted about whether or not we are headed into a recession. By definition, a recession is the decrease of GDP for 2 successive quarters or more followed by an increase in unemployment rate. According to this NBC article the current unemployment rate is 3.5%, a decrease from 9 months ago and is also the lowest it's been in the past 50 years. This was shocking for me because many people who got employed during Covid to meet demand in certain sectors are getting laid off since demand is decreasing from the beginning of the pandemic for these jobs. Also big companies such as Microsoft and Google just recently announced that they’re laying off a good chunk of their workforce. Despite these facts, there are millions of job openings, and unemployment is relatively low. This should mean that we shouldn’t be on the brink of a recession, but I believe that we still might be headed into a recession because prices are relatively high due to high inflation. This is affecting consumer spending negatively because people are no longer able to afford as much as before therefore spend less. A drop in consumer spending slows down economic growth since personal consumption makes up ⅔ of the US GDP. This decrease in consumer spending can be extremely detrimental to the economy because it decreases GDP.
7 comments:
I think the employment market is really interesting right now. There are so many job openings and yet the unemployment rate is really low. We're in a weird time for the employment market as the Labor Force Participation Rate is dropping due to the massive amount of retirements as Baby Boomers reach that age and the pandemic discouraging people from being in the workforce. These next few years will be very interesting depending on what happens with the job market.
I think that it important for the Fed to take these factors into consideration when they have their next meeting. With the labor market being so hot right now I think that those who are being laid off will be able to find new jobs relatively soon. It is concerning though to see large companies such as Microsoft and Google lay off large numbers of employees. It will be important to watch if other large companies will follow suit. As for interest rates I think it will be important for the Fed to continue with their interest rate hikes to help ease inflationary costs.
We could potentially be headed for a recession but I don't think it will come within the next year or two. The GDP has been increasing and places like China are opening up again which will help remedy some of the issues faced by the United States. The FED is also working on adjusting interest rates today and they have taken into account the recent increases in inflation so the prediction is that they will raise interest rates but not by many percentage points which will help ease the economic uncertainty.
Hello Yoyo,
This is a very broad topic. My take on the current economic outlook is a little more optimistic than your outlook. In 2022, in the last 2 quarters, a chairman of the federal reserve of Cleveland states that we are not in a state of recession. The reason is the super low unemployment rate in the U.S. The definition of a recession does take into account both GDP and UR. We saw recession GDP numbers in 2022 but did not see a high enough UR to officially declare a recession.
It is also my understanding that if the government were to have declared a state of recession the U.S. would have reacted as such. Meaning when people think it will be a rainy day then they will prepare for one. We would have seen a large increase in the savings rate along with a decrease in the consumer spending index.
Given low UR, a decrease in inflation, and an increase in IR I believe that we will continue to see these trends follow the guidance and goals of the federal reserve. However, these goals will take years to satisfy.
Overall, really good job!
-Ryan Stefancin
If you would've asked me my thoughts on the economy 8 months ago, I would've had a completely different outlook. A lot of people ignore or forget the fact that Americans are relentless consumers. The American people have slightly slowed purchasing with the high inflation, although we have hit a historical high on credit spending which may not be the best sort of spending. Also, the labor market is in a weird place with more job openings than people unemployed. We must keep an eye on China to see how their COVID opening is done, and if they slow down their opening, it could mean another slowing of the supply chain. There has been some positive macroeconomic news from around the world which can help keep consumers in a positive outlook.
Yoyo, I agree with your argument that even though the current unemployment rate is the lowest since 50 years ago and millions of jobs have been put out in the job market, high inflation keeps prices high and goods and services are harder to afford. The current 3.4% unemployment rate came as a surprise to me too, since big tech companies like Microsoft, Meta, and Google fired tens of thousands of employees. Also, because of the current political tension in Europe, and the middle east, made gas prices have been steadily high (almost doubled from 2021). Federal Reserve's efforts to capture inflation on its natural rate by bumping up interest rates do not seem to be having its full effect. Also, increased government spending to fund Ukraine and Israel(almost $100 Billion for both of the countries combined) has led to an outflow of US dollars from the country which therefore leads to high inflation and increased prices.
It is funny to read this, because it's almost like we are creating our own recession, because we think one is going to happen. But in reality, if these major companies did not lay-off so many workers, would we really go into as bad of a recession?
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