The United States is currently blanketed by the eerie silence that can be felt before a charging storm. This storm is none other than the recession. There is a divide among intellectuals: has the storm arrived or is it on its way?
Know The Fact brings you both perspectives related to the recession that is currently the talk of the town in The United States.
What is a recession and how is it different from inflation?
A recession is described as a serious decline in the general economic activity in a particular area. It occurs when a company experiences losses for six financial months or two consecutive quarters if it is apparent in the GDP. Another factor that plays a major role in determining the recession is the rise in unemployment. However, the definition of what a recession actually is has been modified by the National Bureau of Economic Research (NBER). The NBER describes a recession as a decline in economic activity across the economy. This decline can last for more than a few months. The impact is visible in “real GDP, real income, employment, industrial production, and wholesale-retail sales.” On the other hand, inflation is the rate at which there is an overall rise in prices, or the increase in the cost of living. It is also characterised by the rate of decreasing purchasing power of the currency over time.
Is the United States currently in a recession?
Many people across the United States hold the belief that they are currently in a recession. Their argument is the skyrocketing inflation and pocket-pinching gas prices. Topping off the cake is the fact that basic necessities such as groceries are also suffering from rising prices. With the upcoming United States election in November this year, the opposition is using this narrative to garner support for itself. Americans have also been facing layoffs, further worsening the situation. Many significant companies, such as Tesla, Netflix, and JPMorgan, are cutting jobs. This is a consequence of the Federal Reserve hiking interest rates to combat the current inflation in the United States. In an interview with CNBC, the CEO of Ark Invest, Cathie Wood, said that the United States is indeed in a recession.
Is it true that the recession has not hit the United States yet?
The simple answer is that the recession has not yet hit the United States, according to most economists. Nonetheless, high inflation is a cause for concern. The reason that they believe so is that, even though the GDP did decline in the first three months of 2022, things have been improving. Statistics have revealed that there has been an increase in consumer spending and also an increase in imports.
If a person looks at the situation from the perspective of the GDP, there is no increase, as the GDP is only concerned with domestic production and not imports. Economists believe that the US economy will face a decline in the second quarter too, but consumer spending is expected to remain strong. The good news is that even if it does take place, the US economy will not face a recession.
What can we expect in the future?
According to Bloomberg Economics, there is a three-in-four probability that the United States will face a recession at the beginning of 2024. Economists at Deutsche Bank AG and Wells Fargo & Co. are of the opinion that the recession will hit in mid-2023. Economists at Nomura Holdings Inc. predict that it will hit earlier than that, at the end of this year itself. If gas prices continue to shoot up, then it is estimated that the occurrence of a recession will be more likely.