Recession and inflation have been 2 words that have tended to cause severe headaches to all major economies worldwide since the pandemic. The US, the largest economy, has not been immune to this either. In fact, the only thing most economists and statisticians talk about is how a large recession is looming over the US. If it’s not coming now, it is in the future. Slowing economic growth, the Russia-Ukraine war, and Feds raising the rates like it’s nobody’s business have only further cemented the fears.
So, the million-dollar question on everyone’s mind right now is: Will there be another recession? Will the United States experience another rocky ride?
Let’s find out
Is the US in a recession?
While technically, a recession cannot be measured, economists use GDP to figure out its occurrence. A country is said to be in recession if it has GDP contraction for two consecutive quarters.
Let’s now read a few figures. The US GDP gained 2.4% in the second quarter of 2023 and will likely add a few more points in the next quarter. US consumer spending is healthy and shows no signs of slowdowns. Businesses are investing, and the hiring is alright. All these signs do not coincide with that of a recession.
Not to mention the Feds finally stopped the hike party. So, can it be concluded that there is no threat looming over the US?
Well, it’s not that simple. Remember the saying, when the US sneezes, Europe catches a cold? In an interesting case, the reverse might have happened!
It is no secret that the pandemic stung all economies in the world. The whammy doubled thanks to the Russia-Ukraine war. Not just that, the ongoing war disrupted global trade, food prices and oil and energy industries too.
And did we mention the tech layoffs that triggered massive fear and slowdown across the globe? Feds hiking the rates nonstop caused a run on the banks that were about to cause a massive financial meltdown (it got managed, though). The US debt ceiling was about to get breached, which could have broken equity markets across the world.
As we speak of rate hikes, remember they are done to tame inflation. But, the US has historically been borrowing at lower rates. Many economists predict that the high-interest rates will not be sustainable for the economy. These rates will directly impact corporates and economic growth.
Housing and mortgage markets may not spell out good news either, as consumer spending remains unpredictable. Adding to the woes, S&P companies are on their way to reporting a near 5% decline in the second quarter.
Another phenomenon points to a possible looming recession – Yield curve inversion.
This happens when the 2-year US Treasury note is above the 10-year Treasury note yield. Note that these inversions are viewed as strong signs of a recession indicator. 66% of the times that the yield inverted, the US economy did fall into a recession. Now, the last time this happened was just a few months before covid-19 struck.
Should you worry? Umm yes. But remember that this is not the first time, and it is definitely not the last time that a major economy force has recessionary fears.
In the end, it is important to remember that interconnected economies need to show more resilience and step on preparing to fight any kind of recession or slowing on a war footing.
Why? Because all the signs tell only one story.
What is that?
We leave it to you.
The US economy has been in the news for all the wrong reasons since 2023. First, the non-stop rating hiking, followed by a bank run and then the debt ceiling near breach. While the signs of a recession are looming, economists predict that no such thing might happen after all.
Watch this space to know more!