Is the US in a recession?

Over the last three years, the global economy has been hit with seismic impacts. To say it has been a turbulent time for Western economies is an understatement. As the world’s largest economy, the United States is a country that many economists keep an eye on during these times. 

If the US can stay away from recession and other adverse economic headlines, it can be a good omen for other world economies to try and avoid recession too. Following bouts of high inflation, economists and analysts have predicted that the US should see this rate slow down. A handful have even suggested the possibility of deflation. 

While this is extremely unlikely, many economists ponder what is deflation likely to do to such a mighty, global economic superpower. The last time the US economy experienced deflation was in the previous major recession, which occurred in 2008 after the global financial crisis that started in America. We will discuss that in more detail today and examine whether the US economy is heading for a recession.

What is recession?

Firstly, we will establish the textbook definition of recession before we explore how close the American economy is to entering it. A recession is a period of economic decline that affects the entire economy and is considered in the event of two consecutive quarters of economic decline.

Many underlying factors can cause gross domestic product (GDP) to decrease for several months.

These include:

• A decrease in consumer spending – retail (in-store and online).
• A rise in unemployment figures.
• Lack of disposable income (how much money people can afford to spend on non-essential items).
• A decline in business manufacturing of goods and services.

There are other examples to note. However, if a number or all of these factors are at play, the economy is in trouble. If the stock markets crumbled like cryptocurrency did in Q4 of 2022 due to the collapse of FTX, this would signal a major recession.

When was the last major recession in the United States?

The global financial crisis in 2008 kickstarted the last major recession in the US economy. Lasting for nearly two years, from December 2007 to June 2009, it sent shockwaves throughout the world economy. Many other economies didn’t fully recover until years later.

The housing crisis in the United States started this contagion, and significant country’s economies followed, including the United Kingdom and several other countries in Europe.

Despite large shocks to the economy, the American administrations that have been in office since June 2009 have managed to avoid a recession. However, with so many factors at play, it can be complicated to balance an economy so that it doesn’t tip too far one way and go into recession. 

Is the US in a recession?

Based on the information in official figures, the United States economy is not in a recession. However, many analysts and commentators are expecting that the economy will slide into a recession at some point in 2023. 

This isn’t a unanimous verdict across the board, though. With so many variables to weigh up in such an enormous economy, some opinion divides the consensus. 

Some of the most significant investment banks in the world, such as Goldman Sachs, predict that the economy will experience some form of recession. Usually, these institutions will compile evidence from thousands of different sources to highlight the probability of a recession. 

The size of the recession could be the key to whether the economy will be able to recover quickly. For example, the recession in 2008 was a deep retraction that caused millions of Americans to lose their homes and jobs. 

However, most analysts who believe an economic downturn is inevitable do not think it will have the significant impact of just over a decade ago. 

If the economy is due to take a dip into a recession, the American government can adjust business and economic policy accordingly. This will allow the economy to move organically into a more profitable range where potential growth stimulation occurs. 

Conclusion

As the world’s largest economy, there are many eyes on American economic figures. Even more positive than expected news can have a tremendous impact on markets. Likewise, if a recession is announced, it will not be a surprise but will cause some fear and uncertainty, which will be reflected in the markets, especially in the short term.

Recession means less money for people to spend, reduced prosperity and fewer people in employment. But, ultimately, the US could come out of any predicted recession quickly or avoid one altogether. These would be the two most beneficial outcomes for the Biden administration and millions of Americans.