Is the economy in a recession? Senior Economists Weigh

We must have an objective definition

Formally, NBER defines a recession as “a significant decline in economic activity that spreads throughout the economy and lasts for more than a few months.” In fact, the latest quarterly GDP report, which tracks the overall health of the economy, showed a second straight contraction this year.

However, if NBER does eventually declare a recession, it could be months from now, and it will take into account other considerations, such as employment and personal income.

What really matters is that their salaries don’t go that far.

Thomas Philipson

Acting Chair of the White House Council of Economic Advisers

This puts the country in a gray area, Phillipson said.

“Why do we let an academic group decide?” He said. “We should have an objective definition, not the opinion of an academic committee.”

Consumers act like we’re in a recession

For now, Phillipson added, consumers should focus on energy price shocks and general inflation. “This affects ordinary Americans.”

To that end, the Fed is taking strong steps to cool high inflation, but “it will take some time to work its way up,” he said.

“Powell is raising the federal funds rate, leaving himself open to raising it again in September,” said Diana Furstjot-Roth, professor of economics at George Washington University and former chief economist at the Department of Labor. “He says all the right things.”

However, consumers “pay more for gas and food, so they have to cut back on other spending,” Furchtgott-Roth says.

“Negative news is constantly increasing,” she added. “We are definitely in a recession.”

What Comes Next: “The Road to a Quiet Landing”

The two experts said that the direction of the labor market will be key in determining the future state of the economy.

Phillipson noted that the decline in consumption comes first. “If companies can’t sell as much as they once did because consumers aren’t buying as much, then they’re laying off.”

On the plus side, “we have twice as many job vacancies as unemployed people, so employers won’t be in a rush to lay people off,” according to Fortgut Roth.

“This is the path to a quiet descent,” she said.

3 ways to prepare your money for a recession

While the impact of record inflation is being felt across the board, every household will experience regression to a different degree, depending on their income, savings and job security.

However, there are still some ways to prepare for a global recession, according to Larry Harris, president of Fred F. Keenan is in finance at the University of Southern California’s Marshall School of Business and a former chief economist at the Securities and Exchange Commission. .

Here’s his advice:

  1. Simplify your spending. “If they expect that they will have to cut back, the sooner they do it, the better off they will be,” Harris said. That could mean cutting some expenses now that you only want and don’t really need, like the subscription services you signed up for during the Covid pandemic. If you don’t use it, lose it.
  2. Avoid changing debts. Most credit cards have a variable annual percentage rate, which means there is a direct connection to the Federal Reserve standard, so anyone with a balance will see the interest fee jump with every move by the Fed. Homeowners with adjustable mortgages or lines of credit for home equity, which are tied to the base rate, will also be affected.

    This makes this a particularly good time to determine your outstanding loans and see if refinancing makes sense. “If there is an opportunity to refinance at a fixed rate, do it now before interest rates go up any further,” Harris said.

  3. Consider storing additional funds in Series 1 bonds. These inflation-protected assets, backed by the federal government, are virtually risk-free and pay a 9.62% annual rate through October, the highest ever return.

    Although there are purchase limits and you can’t cash in on the money for at least one year, you’ll get a much better return than a one-year savings account or certificate of deposit, which pays less than 2%. (The prices on online savings accounts, money market accounts, and certificates of deposit are all about to rise, but it will be some time before those returns compete with inflation.)

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