Recessions don’t become real to most people until they start worrying about losing their own job, says Steve Burns of New Trader U.
What happens in a recession?
Since World War Two, there have been two common factors that have happened during every recession:
- The GDP that shows economic output goes down.
- Unemployment goes up.
Is the US in a Recession in 2022?
No, currently the US is not in a recession, yet. A recession is defined as a period of temporary economic decline when trade, economic output, and industrial activity decline as quantified by a drop in GDP in two straight quarters in a row. This has not occurred so far in 2022.
In 2022, as the GDP for the US goes negative the unemployment rate has not gone up with it.
Real gross domestic product (GDP) decreased at an annual rate of 1.6% in the first quarter of 2022, according to the “third” estimate released by the Bureau of Economic Analysis.
The US unemployment rate continued to stay low at 3.6% in June 2022 after declining after the pandemic.
The correlation between the GDP and unemployment has always been in place as they feed on each other. As people lose their jobs they have less discretionary money to spend in the economy so economic activity declines. Creating a negative feedback loop.
Inflation has been the catalyst for negative consumer sentiment as the cost of living has increased dramatically over the past year with a 9.1% core inflation rate that doesn’t accurately reflect the increase in food, housing, or energy costs.
Another thing that would be odd about this recession is that corporate profits are still in double digits on average and during previous recessions, they were in single digits which caused businesses to scale back hiring, lay off workers, and invest less in growing their business operations.
US corporations also have approximately $4 trillion on their balance sheets currently which could be a huge safety net and buffer for a decline in profits or sales in their business operations.
The layoffs may not be as severe as normal recessions. The labor force participation rate is currently at 62.2% and a 40-year low. Companies have placed a higher value on workers after all the difficulty they have had recruiting and retaining workers during the pandemic and the great resignation they saw over the past two years with workers wanting to work from home, switch jobs for higher pay, or drop out of the workforce entirely to do their own thing.
There are still currently 11 million open jobs in the US that employers can’t find workers to fill. A very different situation from a normal recession. The US has four million more job openings now than it did during the height of the last economic expansion.
Currently, economic output is declining but companies are continuing to hire more employees. This is the odd current situation of a job full downturn during a recession in contrast to a jobless recovery after a recession is over.
Something must give, either companies will see declining sales and profits and start to adjust their labor force, or the economy will turn positive again as employers stay staffed and hire.
If there is a true quantifiable recession in 2022 it will look like nothing we have seen before.
So far layoffs and hiring freezes have been primarily in companies in the tech sector and/or startups.
Companies That Have Laid Off Workers in 2022:
This recession will be like no other for many reasons.
Learn more about Steve Burns at NewTraderU.com.